Impending retirement.... probably

[retired at 48]

@Koolau , who posted "Of course, WADR (with all due respect) to R48, he doesn't address MY reason for waiting to 70 - that is, to set DW up with a higher survivor benefit."

I consider I did address this. Including posts above re Longevity insurance. I don't know your particular individual circumstances, but you did post herein : "Thank God that I saved extra or I might have actually panicked over things..."

If you have saved extra it is unclear why a higher survivor benefit is a goal. But let's assume it is. First by delaying SS, the higher income is not free. You gave up a considerable amount left on the table with the gvt, age 62 to age 70. That money invested provides a huge cushion going forward. Like, even without growth to age 70, a $25,000 example SS income, age 62 to age 70 is $200,000, and growing every year on its own. Invest in ETFs and annual taxes are negligible.

Further if one really desires higher spousal benefits in later years, take the early SS money and buy a longevity annuity as described herein. You can cover this risk by insurance...longevity annuities.

R48

 

[retired at 48]

A few quick thoughts.

1) SS at 67 or later, means somewhat more depleted savings. (ask Grok3 to calculate the options)
2) I discovered that all my planning went out the window with a stunning number of huge expenses
3) ACA (health ins) tax break subsidies are set to expire in 6 months, and so far no effort to extend them exists
4) Mature American men now die on average, at age 73.5 years, according to the CDC. life expectancy at birth for males in 2023 was 75.8 years

I retired at age 60 due to health issues. I have practical expectations about my lifespan. Last month was terrible. This week pretty good so far. Each relapsing/remitting cycle does damage. SS at 62 for me.

@Cujet ...I understand your post completely. And you raise a good cautionary point for those delaying, and waiting into age eighties for the breakeven point. Namely, you cannot be sure SS in its current form will be there for you. My adult kids and their generation suspect great cuts will be made. By taking SS early at age 62, the money is in your hands to invest going forward. Leaving it with the gvt means their hands.

The country faces a huge problem with the declining birth rate. We are down to about 2 workers per SS retiree (started at 13 to 1). Surely the young will be revolting at how much they pay old timers to be retired. Expect COLA increases to be history. Expect means testing SS income; expect more SS income to be taxable, with maybe even a surcharge. May see actual "emergency cuts" in SS income paid. And so on.

Bottom line: When president FDR passed SS, he stated the SS income would never be taxed. Now it is. IRAs had beneficiaries take a lifetime to withdraw; now within ten years after death of IRA holder. Expect SS to have similar hits to payouts.

As Cujet plans, take your SS early; you invest and control it. And unlike SS that ends with death of both spouses, your assets will keep growing and can be left to family members with a step up gain at death.

R48

 

[pb4uski]

I'll keep it short. You definitely don't get what we are saying, but in short each dollar of SS received absorbs 85c of lower tax brackets and is therefore 85c that is unavailable for low tax cost Roth conversions.

The much higher benefits for a 20 year deferred annuity are because of two things. First, if you live to 85, the $100,000 premium will be invested by the insurer and will probably quadruple over 20 years. That is why the annuity benefit is so high. Also, if you don't make it to 85, your beneficiaries will either get a return of the $100,000 premium and the insurer keeps the growth or the beneficiaries will receive the accumulated value (depending on the contract terms).

But in any event, it isn't an annuity with COLA adjusted benefits as I challenged you to provide.

 

[pb4uski]

... Annuity companies can provide this huge payout because they will invest the $100,000 in stock and bond assets. And approx 40% of stock returns all time is due to inflationary increases...thus keeping up with inflation. ..

Insurers back their annuities, even their deferred annuities with bonds, not stocks. Investments in stocks utilize too much capital

 

[pb4uski]

[...When president FDR passed SS, he stated the SS income would never be taxed. ...

Incorrect.

Franklin D. Roosevelt never said that Social Security benefits would never be taxed. The belief that FDR made such a promise is a myth. Originally, Social Security benefits were not taxed, but this was due to Treasury Department rulings, not because of any law or statement by Roosevelt.

 

[TheWizard]

I agree with several of the others that delaying SS to age 70 is a good idea for wealthier retirees in good health who want to do decent Roth conversions in their 60s. That's what I did.

Claim SS at 62 if you need to or want to, conspiracy theorist or otherwise. But don't say that age 62 claiming is best for everyone...

 

[pb4uski]

R48,

Consider this scenario. A wealthy 62 yo retiree that has a huge tax-deferred account so is concerned about future RMD. Could take $21,000 at age 62 or $30,000 at age 67 or $37,200 at age 70.

For 2025, the top of the 12% tax bracket for a single person is $48,475 plus they get a $15,000 standard deduction, so they could have as much as $63,475 of ordinary income and still be in the 12% tax bracket. Anything above that would be taxed at 22%.

So if they delay SS they can do as much as $63,475 of either tax-deferred withdrawals or Roth conversions.

If they take $21,000 of SS, they can only do $45,625 of Roth conversions as stay in the 12% tax bracket. The difference of $17,850 is 85% of the $21,000 in SS.

That $17,850 times 8 years is $142,800 of tax-deferred withdrawals or Roth conversions that they can do if they delay SS... and the cherry on top is a higher SS benefit.

 

[Cujet]

R48,

Consider this scenario. A wealthy 62 yo retiree that has a huge tax-deferred account so is concerned about future RMD. Could take $21,000 at age 62 or $30,000 at age 67 or $37,200 at age 70.

For 2025, the top of the 12% tax bracket for a single person is $48,475 plus they get a $15,000 standard deduction, so they could have as much as $63,475 of ordinary income and still be in the 12% tax bracket. Anything above that would be taxed at 22%.

So if they delay SS they can do as much as $63,475 of either tax-deferred withdrawals or Roth conversions.

If they take $21,000 of SS, they can only do $45,625 of Roth conversions as stay in the 12% tax bracket. The difference of $17,850 is 85% of the $21,000 in SS.

That $17,850 times 8 years is $142,800 of tax-deferred withdrawals or Roth conversions that they can do if they delay SS... and the cherry on top is a higher SS benefit.

OK, but if that well off retiree takes SS at 62 and contributed the max, he could invest it over the same time frame and end up with just over $200,000 with a 5% rate of return. And that's hard cash he can leave to his descendants.

 

[WhenIsItTime]

R48,

Consider this scenario. A wealthy 62 yo retiree that has a huge tax-deferred account so is concerned about future RMD. Could take $21,000 at age 62 or $30,000 at age 67 or $37,200 at age 70.

For 2025, the top of the 12% tax bracket for a single person is $48,475 plus they get a $15,000 standard deduction, so they could have as much as $63,475 of ordinary income and still be in the 12% tax bracket. Anything above that would be taxed at 22%.

So if they delay SS they can do as much as $63,475 of either tax-deferred withdrawals or Roth conversions.

If they take $21,000 of SS, they can only do $45,625 of Roth conversions as stay in the 12% tax bracket. The difference of $17,850 is 85% of the $21,000 in SS.

That $17,850 times 8 years is $142,800 of tax-deferred withdrawals or Roth conversions that they can do if they delay SS... and the cherry on top is a higher SS benefit.

These discussions are all about context. To me, a wealthy retiree probably has similar (wealthy lifestyle) level of expense needs and annual income to pay the bills. Could be in the 32.5 or 37% bracket pretty easily and Roth contributions don't make a lot of sense.

 

[pb4uski]

I agree, if someone is in the highest tax brackets then Roth conversions probaby not a great idea, it all depends on what you expect that monwy will be taxed at if you don't convert it now.

 

[pb4uski]

OK, but if that well off retiree takes SS at 62 and contributed the max, he could invest it over the same time frame and end up with just over $200,000 with a 5% rate of return. And that's hard cash he can leave to his descendants.

He'll still only get 70% of his PIA at 62 or 124% of his PIA at 70, so whether he contributed max or not doesn't matter so that particular part of your post is rubbish.

Whether he will leave more to his decendants or notl depends on how long he lives and the return earned on "savings". And even if he takes SS at 62, if he lives long he will spend down your $200,000 and then some if he lives long and his decendants will get less.

 

[Koolau]

I note @Koolau posted same, that better to wait into age seventies for roth conversions. I see it differently. By taking at 62, one does not end up with larger RMDs. The age sixties in most investment forums are the best times to make Roth conversions from Trad IRAs. By taking SS early, you do not have to withdraw similar amounts from one's 401.k or IRA. Further, this same amount should then be converted to Roths.

I'm sorry if I appeared to suggest converting to Roths AFTER age 70. Instead, I believe as pb4uski that the time to convert is before 70 and before SS if you can (financially) wait.

These issues around taking SS are more complicated in some situations than others. Someone single and needing the money has every reason to take SS at 62. Pretty much everyone else has at least reason to examine taking SS later - perhaps all the way to 70. No one-size-fits-all, but general guidelines of setting up spouse for higher SS payout once you're gone as well as keeping income low to accomplish low-taxable during Roth conversions probably shouldn't be ignored.

I hope I'm not beating a dead horse. Certainly don't know everything and desire only the best for all our members. Heh, heh, I often warn people to consider my advice worth every cent you paid for it!!

 

[TickTock]

Inflation using accurate metrics that include rent, home prices, fuel, food, insurance costs and consumer prices:
2020 =1.5%
2021 =10.2%
2022 =13.8%
2023 =6.9%
2024 =3.8%
2025 =3.6%

Social Security increases:

2020: 1.6%
2021: 1.3%
2022: 5.9%
2023: 8.7%
2024: 3.2%
2025: 2.5%

• Social Security COLA Total Inflation: 27.3%
• Accurate Inflation Estimate Total: 48.9%

I can't predict inflation or growth during the next 5 years. One thing is clear, counting on SS to increase rates properly is 'wishful thinking'. I also have serious concerns about SS raising the retirement age sometime soon. The idea that some of us would be unaffected is based on the current law. That could change.

While I'll not defend SS COLA (which is CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers) as a perfect method for retiree inflation, our spending has not grown by 48.9% since 2020 while maintaining the same lifestyle. And I suspect that most folks' spending hasn't grown that much.

 

[retired at 48]

I plan to reply folks...just a little busy today. I also note Original Poster @pook has not posted in a long time; not sure he has an interest in these considerations.

R48

 

[pook]

Sorry, not ignoring. I’m on a work trip oconus so only able to read / respond on occasion. Lots to consider. On the flip side, got a free trip to germany for work.

 

[Koolau]

Sorry, not ignoring. I’m on a work trip oconus so only able to read / respond on occasion. Lots to consider. On the flip side, got a free trip to germany for work.

Nice. I almost forgot just how much cool travel I got to do for Megacorp!

Enjoy. We'll wait for you get home.

 

[pb4uski]

^^^ I dunno. I traveled for business to many interesting places but more often than not, unless I stayed the weekend it was mostly airport to office to hotel to restaurant for dinner to hotel to office... to airport without very much time for sightseeing.

 

[retired at 48]

@pb4uski , who wrote: "I'll keep it short. You definitely don't get what we are saying, but in short each dollar of SS received absorbs 85c of lower tax brackets and is therefore 85c that is unavailable for low tax cost Roth conversions."

R48 reply: Technically correct for certain instances. For those needing to spend some investment returns to live on, taking Soc Security provides a low taxed income, thus enabling a lesser amount to be withdrawn from IRAs.

For individuals such as pook, whose entire spending needs are covered by pensions alone, they generally (like pook) are in a tax bracket above 12% and conversions are not recommended in paying high taxes now. Defer taxes whenever one can.

To cover such taxes a decade or more down the road (due to higher RMDs) , this is where the early SS income comes into play. It is assumed the entire amount taken early is saved/invested. This becomes the growth vehicle to use in paying any additional taxes due to increased RMDs much later in life.

An example...a person such as pook takes SS early at $25,000 a year. Even without annual asset growth, this is $200,000 extra in-pocket at age 70, that the late SS taker does not have. As posted earlier, invest in stock ETFs and annual taxes are minimal. This $200,000 grows to a very ,very large sum, enabling one to easily pay the added taxes due to a larger Trad IRA.

Lastly, this $200,000 extra is immune from rates of investment returns. That is, let's say there is no stock market growth for 20 years. That means the person's trad IRA similarly did not grow...so no added tax issue. If the market zoomed and your Trad IRA is now much larger, so is the $200,000 pocket of extra money growing to enable paying taxes.

Do not let the "taxes tail" wag the "investment dog." You want your Trad IRA to grow into huge amounts...the more the better. You offset higher RMDs with the $200,000 growing similarly to pay any added taxes. You do not do Roth conversions if above 12% bracket.

Either way you are far better off taking SS early than paying the gvt lots of money, now, to convert.

R48

 

[retired at 48]

Incorrect. Franklin D. Roosevelt never said that Social Security benefits would never be taxed. The belief that FDR made such a promise is a myth. Originally, Social Security benefits were not taxed, but this was due to Treasury Department rulings, not because of any law or statement by Roosevelt.

Per google: The government started taxing Social Security benefits in 1984.

I have seen a video on investment forums of President Franklin D. Roosevelt, who started SS , saying precisely that SS income would not be taxed; I don't have video at my fingertips.

R48

 

[pb4uski]

... Either way you are far better off taking SS early than paying the gvt lots of money, now, to convert.

R48

You're clearly in the minority on that view and a lot of really smart people on this forum have concluded that it is better to delay SS. If you insist, we could do a poll but from the posts in this thread I think it is pretty clear what the results will be.

But you do you and good luck to you.

You recommended that the OP take SS at 62, I indicated that I thought that was poor advice and a number of others agreed with me. You've stated your case. Get over it.

 

[pb4uski]

... I have seen a video on investment forums of President Franklin D. Roosevelt, when SS started, saying precisely that SS income would not be taxed; I don't have video at my fingertips.

R48

Ok, so put up the video or retract your claim that FDR said that SS would not be taxed since you can't prove it.

There is no evidence in the search results of a video where President Franklin D. Roosevelt (FDR) explicitly stated that Social Security would not be taxed. The available videos of FDR’s speeches upon signing the Social Security Act of 1935, such as those found at this link and this link, contain his remarks about the purpose and benefits of Social Security, but do not include any statement about the future taxation of Social Security benefits.

 

[retired at 48]

...That $17,850 times 8 years is $142,800 of tax-deferred withdrawals or Roth conversions that they can do if they delay SS... and the cherry on top is a higher SS benefit.

R48 reply: This quote is a shortened version punchline of what @pb4uski posted. I agree with his math numbers (at a 12% tax rate) to get to this conclusion. However, here are the flaws:

--First, one has to pay a 12% fed conversion tax now, that lessens the amounts in a Trad or Roth IRA or taxable account savings. And the 12% if kept grows each year.

--Second, beware of what the numbers are telling you. The $142,800 is not a "savings". It is the lessened amount in ones Trad IRA. One does not pay tax on this until RMD times. Typical first year RMD is 3.65%, meaning $5000 extra is need to be withdrawn. At a 24% tax rate that is $1200 a year additional tax impact. It saves a little more percentage each year...until death. Then beneficiaries deal with this huge, much larger IRA you are leaving them. Leave to charity and there is no tax impact.

And you gave up $200,000 bird in hand to age 70, to get this small benefit??

Full disclosure. With my age sixties conversions to Roth at 0% rate, and taking SS early, and not converting at 10-12% bracket, I now have a large ROTH IRA and substantial Trad IRAs. I started a Family Community Charitable Foundation in my hometown, whereby Qualified Charitable Donations are made from this large Trad IRA, thus reducing annual fed taxes due RMDs. This is an option for some as well. Many give to charities. Fidelity and Vanguard make it very easy to take from your Trad IRA RMDs, thus reducing tax impact.

R48

 

[pb4uski]

TLDR

In almost 15 years and 38,590 posts I have yet to put someone on Ignore, but R48 is at the top of the candidate list.

 

[retired at 48]

@pb4uski who posted: "You're clearly in the minority on that view and a lot of really smart people on this forum have concluded that it is better to delay SS. If you insist, we could do a poll but from the posts in this thread I think it is pretty clear what the results will be."

R48 reply: (Sidebar...whether FDR stated SS would not be taxable or not, is irrelevant to discussions here). I post on several other investment forums and, with the current fad of delaying to age 70, it is about 40-60 split, 60 being delay. It is a hot-button topic. However, the 40% provide solid numbers of how to assess this, and it is creating "ah ha" moments for many who are thus now opting to take SS early. They see the benefits of early.

My experience also with "ah ha" moments is that only about 1/3 of people will adopt a method, even if they agree with the analysis and viewpoints. I post to create ah ha moments. In the investment world, as a contrarian investor, if more than 50% agree with me, I go back and assess what I may be doing wrong.

One positive thing about when to take SS, is that each person can easily run their own individual situation. Like, simply create columns on a sheet of paper. First take your age 70 SS annual projected income benefit as column one. Start at age 62. So you have zero until age 70. Then add annual benefit and determine what you would have saved cumulatively at year 1971 and so on, with whatever rate of investment return you want to use.

Then create additional columns with taking SS at age 62, adding in the growth rate you assume for age 62 to age 70, arriving at an age 70 saved amount. Now using the same growth rate for the delay to 70 person, run your annual sums consisting of annual SS payout Plus the growth of the early SS savings.

See where the crossover point is; that is, where the age 70 delayed catches up with the early SS taker. Obviously this is not age 71...or not age 75. In fact pb4 has this at age 82, but he did not include growth of the early SS amounts received to age 70. My number is age 85, at growth rates of about 4-5%.

At growth rates of 6-8% one will never catch up in a lifetime. The key is what growth rates you select or consider you can comfortably achieve.

Analyze your own situation.

Best wishes...

R48

 

[pb4uski]

... At growth rates of 6-8% one will never catch up in a lifetime. The key is what growth rates you select or consider you can comfortably achieve. ...

The first part actually isn't true, you do catch up if you live long even at relatively high hurdle rates. At 6% nominal less 2% inflation or 4% real you breakeven at around 86 and at 8% nominal less 2% inflation or 6% real you breakeven at around 95. At 9% nominal or above then you are correct (at least based on living to 100). Go back to post #25 in this thread for details or run your own calculations.

But I agree on the second part. The return on the money that you are using while delaying does have a big impact on the optimal decision. You can test this using opensocialsecurity.com and flexing the input for the discount rate used to calculate the expected present values. Just remember, that the input is a real rate of return, after reducing the nominal return for inflation. Also, I think the 2017 CSO Nonsmoker Preferred mortality table is more realistic than the SS mortality table and the mortality assumptions will also impact the result.

Using 2017 CSO Nonsmoker Preferred mortality and the default 20 year TIPS rate of 2.43%, the optimal claiming age is 68 + 2 months. If one is using a TIPS ladder that is part of their fixed income allocation as a source of funds to delay SS then the real return of a 8-year TIPS ladder is about 1.72%, the optimal claiming age to 68 + 7 months. On the other extreme, if the money is 100% stocks with a 7% real rate of return then the optimal claiming age is indeed 62.

Thos are all for a single person and don't consider any survivor benefits which tend to extend the optimal age to claim in some circumstances (like mine).