Social security leveling – Good or Bad?

[gbstack]

I’m currently 59 years old and I need to make a decision on my pension. Below are the options I’m considering.
Any advice would be greatly appreciated.

Option 1 - Taking my pension on 2/1/2014 without social security leveling would be $31.000 per year starting in February 2014 with 100% joint and survivor annuity.

Option 2 - Taking my pension on 2/1/2014 with social security leveling would be $42,514 until 10/1/2021 and then $21,514. The survivor annuity would stay at $31,000 per year.

I like the idea of taking option 2 and having an additional $11,514 for 7 years to enjoy in my younger years. Would you do it?

 

[timo2]

I'm starting from the view of enjoy it while you can and are in good health. But there are questions. Does the pension have a COLA? if not, that would be a good reason to take as much money early before inflation gets it. Do you have a 401K or something like that that could substitute for the leveling in the early years? or else you could use a 401K to make up the inflation difference in later years?

 

[gbstack]

My current 401 balance is $450,000 and my cash balance is $100,000. My SS will be $27,000 in 2020 and my spouse will get $13,500. I'll also spread out my severance over the next 6 years ($15,000 per year).

 

[gbstack]

The pension is not COLA.

 

[timo2]

Thinking about the survivor benefits, have you calculated waiting to take SS at 70, and using the other funds plus the pension from now until your are 70? It is also difficult for cash to keep up with inflation these days, and spending most of it early might be a better value? just different things to think about.

what did firecalc show?

 

[gbstack]

I have thought about using some of the cash and 401K to delay SS. If I delay my SS it would increase from $27,000 to $36,780. Nice gain for waiting 4 years.

 

[steelhorse4fun]

If I'm reading this correctly, you are presently 59 and you will be too young to get Social Security 2/1/2014. Correct?

I also like the idea of getting the extra money (SS) while you are young enough to use and enjoy it. Most people try to hold off on SS, but it takes many years to make up the difference.

Good Luck!

 

[gbstack]

If I'm reading this correctly, you are presently 59 and you will be too young to get Social Security 2/1/2014. Correct?

I also like the idea of getting the extra money (SS) while you are young enough to use and enjoy it. Most people try to hold off on SS, but it takes many years to make up the difference.

Good Luck!

Yes I'm currently 59 so it will be several years before I collect SS. Still trying to decide if taking the pension with the social security leveling is the best option.

 

[timo2]

I have thought about using some of the cash and 401K to delay SS. If I delay my SS it would increase from $27,000 to $36,780. Nice gain for waiting 4 years.

When I planned by financial strategy, I made the survivor benefit the #1 priority, so I started with the assumption of SS at 70 and worked backward. Between my FERS pension, My thrift plan, and DW 401a, we can spend enough in our 60s for our liking, and then have My SS and DW SS spouse benefit @70 (and the FERS pension and whatever cash we have left). We also will wait to crack open DW's 457 until we take SS. DW si 5 years younger than me.

If I pass first, DW will get 50% of the FERS pension & all of my SS (about $57K per year combined), and whatever is left of her 457 and cash on hand. plus a couple small life insurance policies

 

[Animorph]

From a purely financial standpoint, if you live another 30 years you get something like 8 years of the higher payment and 22 years of the smaller payment, versus 30 years of the $31k payment. For very low returns/low inflation, the normal $31k payments are better. The later higher payments make up for the early shortfall. The breakeven comes at about 6% return/inflation, which is pretty high. Invest the excess payment at 7% and you will come out ahead with the leveling.

The interesting case is if you are survived while taking the leveling payments and the payment jumps back up to $31k (that's how I understood the OP). For example, if you live only 20 of those 30 years, the breakeven return is a little above 2%. That looks pretty appealing, in a dark sort of way.

So, how much do you expect your portfolio to make, or inflation to run, and how long do you think you'll live? Higher returns plus inflation favors leveling. Longer life for you favors the flat payment.

 

[pb4uski]

I’m currently 59 years old and I need to make a decision on my pension. Below are the options I’m considering.
Any advice would be greatly appreciated.

Option 1 - Taking my pension on 2/1/2014 without social security leveling would be $31.000 per year starting in February 2014 with 100% joint and survivor annuity.

Option 2 - Taking my pension on 2/1/2014 with social security leveling would be $42,514 until 10/1/2021 and then $21,514. The survivor annuity would stay at $31,000 per year.

I like the idea of taking option 2 and having an additional $11,514 for 7 years to enjoy in my younger years. Would you do it?

My pension doesn't offer this feature so I haven't thought much about it.

I assume that the leveling it to 62 or to your FRA so if you wanted to gain the benefit of taking SS at 70 that you would just need to use 401k funds to fill the gap.

If your pension plan is financially shaky then getting more earlier might be better.

If you're in good health and have longevity in your genes that would bias the answer to Option 1; if the opposite then bias to Option 2.

 

[gbstack]

From a purely financial standpoint, if you live another 30 years you get something like 8 years of the higher payment and 22 years of the smaller payment, versus 30 years of the $31k payment. For very low returns/low inflation, the normal $31k payments are better. The later higher payments make up for the early shortfall. The breakeven comes at about 6% return/inflation, which is pretty high. Invest the excess payment at 7% and you will come out ahead with the leveling.

The interesting case is if you are survived while taking the leveling payments and the payment jumps back up to $31k (that's how I understood the OP). For example, if you live only 20 of those 30 years, the breakeven return is a little above 2%. That looks pretty appealing, in a dark sort of way.

So, how much do you expect your portfolio to make, or inflation to run, and how long do you think you'll live? Higher returns plus inflation favors leveling. Longer life for you favors the flat payment.

According to the information that is available online the survivor would jump back to the $31k if I’m the 1st to go. I have request they send me that information.

 

[gbstack]

Thank you for the feedback. Just trying not to make a big mistake.

If it was you, would you go with the leveling option?

 

[gbstack]

So I have eliminated my old option 2 and added a new option 2.


I’m currently 59 years old and I need to make a decision on my pension. Below are the options I’m considering. Any advice would be greatly appreciated.

My current 401 balance is $450k and my cash balance is $100k. My SS at 66 will be $27k in 2020 and my spouse will get $14k. If things go well I'm hoping to hold off until 70 for SS.


Option 1 - Taking my pension on 2/1/2014 without social security leveling would be $31k per year starting in February 2014 with 100% joint and survivor annuity.

Option 2 - Taking my pension on 2/1/2014 with social security leveling would be $45k until 10/1/2018 and then $24k The survivor annuity would stay at $31k per year.


I like the idea of taking option 2 and having an additional $15k for 4.9 years to enjoy in my younger years. Would you do it?

When I run the numbers with Fidelity Planner for 35 years option 1 ends with a higher asset balance of 185k.

 

[Theduckguru]

Welcome to retirement planning where you get to make important decisions based on unknown future events.

I would take door #1.

 

[gbstack]

Any more picks for door/option # 1 or door/option #2?

 

[38Chevy454]

My $.02 you can add to your retirement funds. I think end decision is a bet of how much return you can get (or risk comfortable with) on your IRA funds.

Personally, my thought is to take the extra money now, and leave the IRA to grow. Then when pension reduces, you can use the extra IRA funds to supplement. Once SS kicks in you can adjust the IRA funds lower. So if I assume you can live on the pension alone for purposes of example, in effect your IRA distributions would be: 2014-2018 = zero, 2018-2020 = $21K/year, and then 2020-beyond = zero (actually you increase available funds by $6K due to your SS).

I realize you may want more than the $45K/year to live on. Then it is a matter of how much more and what withdrawl rate off your IRA funds. Again it comes back to expected return and risk tolerance you can handle. If you can take an additional IRA distribution of $14K/year from 2014-2020 to make up your spouse SS, that would give approx $59K/year to live on and then in 2020 you stop the $14K amount for the SS makes it up.

Also since you never know what can happen health wise, I would take the extra money now and enjoy your time. Extra money later when you are not able to enjoy it does no good.

 

[gbstack]

Currently I’m leaning towards option #2. I like the idea of letting the IRA grow. I know it could be a risk but I think it’s worth the risk. I’m also hoping to delay my SS until 70.
Any more picks for door/option # 1 or door/option #2?

 

[gbstack]

Thanks for all the feedback. Looks like I will be going with option 2.

Last chance to offer more advice!