draw down taxable account to push out SS?

[albireo13]

I retired last Sept and have a modest pension. My wife still works and plans to continue another 3+ yrs.
I am 65 and my SS FRA is Feb 2022, in 1 yr. I haven't started SS yet.
While my pension helps, it doesn't help enough with cash flow to make up for my loss of salary. Unfortunately, the youngest two sons aren't quite financially independent yet.

Our IRA nestegg is substantial and I also have a taxable account of $180K.

In order to help with cash flow, I could either start pulling my SS or, instead, dip into the taxable account for monthly withdrawals.

Deferring SS seems the way to go, at the expense of drawing down my taxable account. I figure I will need to pull about $20K/yr. This will need to go on for maybe 3 yrs. Once my wife retires, and we both are puling SS, we will be golden.

Any thoughts or gotchas on this idea?

My one caveat is the uncertainty over the future of SS. IMO, there is no guarantee the SS trust fund will not be raided by politicians in the future.
It might make sense to start pulling it sooner, rather than later.

 

[grasshopper]

There are lots of folks on ER that use taxable to supplement their income until SS.

 

[RetireBy90]

I would be comfortable taking a small amount from taxable account but would consider drawing from a tIRA depending on your situation. If you have a sizable IRA and most is in a tIRA when you and DW start taking SS and then have RMDs you may find yourself in a higher tax bracket taking RMDs that you don't need but have to take. For me, the answer would depend on the financial situation for the years between your retirements (you and DW) and age 72 where RMDs kick in. It would also depend on how much you are needing to plug the gap in cash flow.

 

[racy]

What RetireBy90 said. (that's what we're doing: taking from tIRA)

 

[Dtail]

What RetireBy90 said. (that's what we're doing: taking from tIRA)

+2 Try to reduce the RMD tax effect down the road.

 

[Exchme]

Absolutely wait to claim SS, especially if your benefit will be the larger of the two. The larger one continues after death of either spouse, so it's very important to wait. Get you and your wife's PIA from SSA.gov and then check on Opensocialsecurity.com for the optimum SS claim strategy.

 

[pjigar]

Don't worry about SS trust fund running out. Here is the simple math: If the trust fund runs out of money in 2035 as expected, the revenue coming into the program is expected to be enough to pay about 79% of promised benefits. The delayed retirement credits (DRC) will raise your benefit rate by 2/3rds of 1% for each month that you refrain from taking benefits until you reach 70. Sum it up: Net increase of benefit amount by 6.32% per year AS LONG AS YOU LIVE. I would wait until 70 before drawing SS unless special conditions apply i.e. Known condition (genetic or otherwise) that affect longevity, disabled child, etc.

Having said that, draw down from IRA if you are in the lower tax bracket now than you would be in the future when all incomes streams (SS, RMD, person, etc.) are firing at full steam. Grow the hay when sun is shining.

 

[albireo13]

Since my wife is still working, and I have some pension income, we will have more taxable income now than when we are both retired (when I have to take RMDs). Our salaries were pretty equivalent.

I figure it would be best to take the funds from our taxable account now for cash flow, especially from the equity index funds.

 

[TNBigfoot]

For me, it seems to make sense to draw down tIRA. I’m 63 yrs age and have funds to bridge the gap to 66 6 mths in CD’s/short duration bond fund. I will keep the draw to stay within the 12% bracket and pay the taxes at these rates (most likely to increase in future). Any amount left up to ceiling, I will do a Roth conversion. At FRA, I may re-evaluate SS filing age if the future looks more certain for SS and the portfolio.

 

[fosterscik]

It sounds like I'm an outlier, but I'm deferring SS until 70 and drawing all income from taxable funds. I could make tIRA withdrawals, but prefer to Roth convert (paying taxes from taxable funds). I move money to grow tax free in the Roth (rather than in the tIRA - subject to regular income taxes - or in my taxable account with capital gain considerations). Better to have remaining Roth funds than remaining taxable brokerage funds while also drawing down my tIRA.

 

[finnski1]

For me, it seems to make sense to draw down tIRA. I’m 63 yrs age and have funds to bridge the gap to 66 6 mths in CD’s/short duration bond fund. I will keep the draw to stay within the 12% bracket and pay the taxes at these rates (most likely to increase in future). Any amount left up to ceiling, I will do a Roth conversion. At FRA, I may re-evaluate SS filing age if the future looks more certain for SS and the portfolio.

This is pretty much my exact thinking as well. I am 61 and 9 months old right now. and my FRA is 66 and 10 months so 5 years to go to reevaluate at that time.

 

[MRG]

That's what I have been doing for the past eight years. Makes all the sense for me, my SS estimate is towards the current top of benefits and I would like to optimize it.

 

[Bigdawg]

It sounds like I'm an outlier, but I'm deferring SS until 70 and drawing all income from taxable funds. I could make tIRA withdrawals, but prefer to Roth convert (paying taxes from taxable funds). I move money to grow tax free in the Roth (rather than in the tIRA - subject to regular income taxes - or in my taxable account with capital gain considerations). Better to have remaining Roth funds than remaining taxable brokerage funds while also drawing down my tIRA.

This is basically our plan. "I'm deferring SS until XX". The reason I put X is because we will take SS when we are done with conversions. Currently 55 and 49 and grossing over 300k. Will start conversions as soon as DW stops working. Probably in 3-7 years depending. That will make me 58-62. Will only need to convert about 600-700K. Once all is converted I will start SS. I am encouraging DW to wait until 70 to draw hers. Her projected gross with 2 COA pension and SS will be well over 100k/yr. She'll be fine.

 

[RetireBy90]

Since my wife is still working, and I have some pension income, we will have more taxable income now than when we are both retired (when I have to take RMDs). Our salaries were pretty equivalent.

I figure it would be best to take the funds from our taxable account now for cash flow, especially from the equity index funds.

I would agree, but don’t forget at RMD time you will also have SS, and hopefully 2 of them. I’m actually drawing from my taxable funds for now and doing Roth conversions with tax paid from taxable accounts. Sounds li,e your plan without the Roth conversions.

 

[Animorph]

Our tIRA gets taken in the most tax efficient manner across all available years. Our taxable accounts are our sole support right now. As long as they last the tIRA withdrawals are turned into Roth conversions with taxes paid from the taxable accounts. When the taxable accounts run out, we'll start spending the tIRA withdrawals. The Roth accounts will then be used to fill in the gap between tIRA withdrawals/RMD's and our expenses. SS will be used for spending as well when it starts at 70 for both of us.

That process seems relatively common and optimum for us. There is a good argument for taking SS earlier, but it's a nice COLA'd annuity that provides a little extra safety.

 

[skipro33]

If you have any health issues at all, or even if your family history gives you a preponderance of having health issues in the future that may affect your life expectancy, then I'd draw the SS now. What's a year going to make difference on your SS draw anyways? Then compare that to your overall net worth when you pull down your taxable wealth. If you have family that may benefit after your death on inheritance, then I'd also consider preserving that and taking SS at this time.
I started SS early, came down with cancer that is likely to shorten my life, so just in the past year, my deferred tax IRA has grown my net worth way more than if I had pulled from that than SS. Meaning; timing can be everything when considering preserving your investments over SS draws.
Whether you live long, have underlying health conditions, or get hit by a bus tomorrow, only you can map out a strategy that is most likely to maximize your spending needs and long term net worth. Good luck forecasting your future!

 

[RunningBum]

albireo, how does a plan to draw down investment assets sit with your wife who didn't want to do that to the point of working overtime?
https://www.early-retirement.org/fo...-clue-what-it-takes-107634-2.html#post2553292
I'm generally for deferring SS but I'd take it if it'd keep the wife from working OT.

 

[pjigar]

Since my wife is still working, and I have some pension income, we will have more taxable income now than when we are both retired (when I have to take RMDs). Our salaries were pretty equivalent.

I figure it would be best to take the funds from our taxable account now for cash flow, especially from the equity index funds.

If you know current and future tax then I would say drawing down from taxable brokerage sounds like a plan.

 

[Clover5]

This makes the most sense to me. Draw off Taxable and take SS early so the deferred accounts can grow to their maximum before dipping in or forced to by RMD. My health is such that early SS makes sense.

If you have any health issues at all, or even if your family history gives you a preponderance of having health issues in the future that may affect your life expectancy, then I'd draw the SS now. What's a year going to make difference on your SS draw anyways? Then compare that to your overall net worth when you pull down your taxable wealth. If you have family that may benefit after your death on inheritance, then I'd also consider preserving that and taking SS at this time.
I started SS early, came down with cancer that is likely to shorten my life, so just in the past year, my deferred tax IRA has grown my net worth way more than if I had pulled from that than SS. Meaning; timing can be everything when considering preserving your investments over SS draws.
Whether you live long, have underlying health conditions, or get hit by a bus tomorrow, only you can map out a strategy that is most likely to maximize your spending needs and long term net worth. Good luck forecasting your future!

 

[skipro33]

This makes the most sense to me. Draw off Taxable and take SS early so the deferred accounts can grow to their maximum before dipping in or forced to by RMD. My health is such that early SS makes sense.

There's a way to enter/change how long you expect to live when using the SS calculator. Like I said, I started mine early, prior to the knowledge I would be diagnosed with cancer 2 years later. I then used their calculator to see when would be best for DW to start drawing on hers. My doc told me that I could expect from 5 to 10 years less life expectancy due to the damage chemo would do to my general health. So I used age 78 for the calculator for determining when my wife should draw hers. It said to do so immediately and to back date to last birthdate when she turned 63. (9 months prior) So she did. She got a lump sum of 9 months SS payment and gets her monthly SS going forward.
Her monthly benefit is less than if she would have waited, but the 9 month lump sum plus reduced payments going forward, I did the math and the 'break even' point will be when I turn 78. If I live past 78, they win to the tune of around $50 a month. If not, then we win. In either case, we are in better position to use the funds now than later.

 

[Dtail]

There's a way to enter/change how long you expect to live when using the SS calculator. Like I said, I started mine early, prior to the knowledge I would be diagnosed with cancer 2 years later. I then used their calculator to see when would be best for DW to start drawing on hers. My doc told me that I could expect from 5 to 10 years less life expectancy due to the damage chemo would do to my general health. So I used age 78 for the calculator for determining when my wife should draw hers. It said to do so immediately and to back date to last birthdate when she turned 63. (9 months prior) So she did. She got a lump sum of 9 months SS payment and gets her monthly SS going forward.
Her monthly benefit is less than if she would have waited, but the 9 month lump sum plus reduced payments going forward, I did the math and the 'break even' point will be when I turn 78. If I live past 78, they win to the tune of around $50 a month. If not, then we win. In either case, we are in better position to use the funds now than later.

Better to lose this race.

 

[pb4uski]

I retired last Sept and have a modest pension. My wife still works and plans to continue another 3+ yrs.
I am 65 and my SS FRA is Feb 2022, in 1 yr. I haven't started SS yet.
While my pension helps, it doesn't help enough with cash flow to make up for my loss of salary. Unfortunately, the youngest two sons aren't quite financially independent yet.

Our IRA nestegg is substantial and I also have a taxable account of $180K.

In order to help with cash flow, I could either start pulling my SS or, instead, dip into the taxable account for monthly withdrawals.

Deferring SS seems the way to go, at the expense of drawing down my taxable account. I figure I will need to pull about $20K/yr. This will need to go on for maybe 3 yrs. Once my wife retires, and we both are puling SS, we will be golden.

Any thoughts or gotchas on this idea?

My one caveat is the uncertainty over the future of SS. IMO, there is no guarantee the SS trust fund will not be raided by politicians in the future.
It might make sense to start pulling it sooner, rather than later.

I agree with others that your health and expected longevity are important factors to consider. If your health is not so good then that would lean toward taking early. Since your DW earned about the same as you I assume that her PIA is more than 50% your PIA, so she won't get any spousal benefit while you are still alive.

You can really reframe your decision like this. Let's say that at your FRA of you are entitled to $100/month. From what you wrote I'm guessing that your FRA is 66 and 4 months. So if you defer to age 70 then your benefit would be $129 ($100 + ($100 * (70 - 66.33) * 8%)). Let's say right now your benefit would be $90/month.

So if you wait until age 70 you will forgo $3,964 ($90/month * 12 *(70-66.33)). Your age 70 benefit will be $39/month higher for life... $129/month vs $90/month... plus you'll get future COLA adjustments on $129 rather than $90.

I would gladly pay $3,964 for a COLA adjusted life annuity that pays me and additional $39/month for life starting at age 70.

While I think Congress will likely do something so benefits are not reduced, even if they were I think it still make sense.... you would pay $3,964 for $39/month higher benefits for ~8 years and $30/month higher thereafter.

 

[HI Bill]

Here's my plan to maximize early spending, and hopefully minimize overall taxes (if tax rates don't change):

Age 55-72: Take tax-deferred distributions equal to at least the standard deduction for MFJ. This is tax-free income! Sell taxable equities, keeping MFJ Taxable Income to <$80K (limit of tax-free distribution on LTCGs). The goal is to lower the tax-deferred account values as much as possible by 72, so that the tax bite is lowered when taking SS and RMDs kick in.

Age 70-72: Take SS, take tax-deferred distributions, continue selling taxable investments as needed.

Age 72+: Take SS, RMDs, and taxable distributions.

I have a year-by-year spreadsheet showing where the distributions are planned to come from. The result is that for the first 7 years of ER, I'll pay no $ to $3K in federal income tax, while I draw down the 401(k), IRA, and inherited IRA prior to my RMD age. It ignores creating carryover losses, and selling low-yield investments (bond funds) when equities are lower.

 

[Clover5]

There's a way to enter/change how long you expect to live when using the SS calculator. Like I said, I started mine early, prior to the knowledge I would be diagnosed with cancer 2 years later. I then used their calculator to see when would be best for DW to start drawing on hers. My doc told me that I could expect from 5 to 10 years less life expectancy due to the damage chemo would do to my general health. So I used age 78 for the calculator for determining when my wife should draw hers. It said to do so immediately and to back date to last birthdate when she turned 63. (9 months prior) So she did. She got a lump sum of 9 months SS payment and gets her monthly SS going forward.
Her monthly benefit is less than if she would have waited, but the 9 month lump sum plus reduced payments going forward, I did the math and the 'break even' point will be when I turn 78. If I live past 78, they win to the tune of around $50 a month. If not, then we win. In either case, we are in better position to use the funds now than later.

I’ll be grateful to make it to 72... heart disease and cancer and HIV (for over 40 years) makes it a stretch goal. That said I’ve been told to prepare for the end a couple times already so I may just surprise again. Am 59 now and we are well funded so we are going to enjoy the next few years. FIRE was both a goal and necessity. What I do want is years of quality over quantity but also leave my DH a very comfortable life thereafter.

 

[Lawrencewendall]

Just remember that what you get from SS is 85% taxable But what you pull from tIRA is 100% taxable.