I set this guy's scenario up in i-orp.
...
Generally the i-orp scenario was this: Both age 62, 30 year plan (ending at 95), both have K$650 in their 401k and nothing in taxable, nothing in Roth, both have PIA of 25K/yr.
i-orp is always something of a black box to me. So, I took your setup and did my own math.
The result is that, yes, you can lower FIT at ages 62-65 by taking SS at 62. However, that also raises taxes at ages 66+. In this particular case, it's pretty extreme.
These are the
start-at-62 numbers, for all years, ignoring inflation.
$37,500 -- SS benefit (75% of $50,000)
$52,000 -- IRA withdrawal (4% of $1.3 million)
$28,738 -- Taxable portion of SS, per FIT worksheet
$80,738 -- Adjusted Gross Income
$54,138 -- Taxable income, after standard deduction of $26,600 *
.$6,116 -- Tax, per tax rate schedule
$83,385 -- After FIT spendable income
These are the
start-at-66 numbers, for years 62-65
$00,000 -- SS benefit (75% of $50,000)
$90,695 -- IRA withdrawal (backed into this to provide equal after tax income)
$00,000 -- Taxable portion of SS, per FIT worksheet
$90,695 -- Adjusted Gross Income
$64,095 -- Taxable income, after standard deduction of $26,600 *
.$7,310 -- Tax, per tax rate schedule
$83,774 -- After FIT spendable income
Yep. The IRA withdrawals have to be $38,695 bigger to cover the missing SS.
Part of this is just the SS benefit of $37,500. The other $1,195 covers the extra tax.
Now, the
start-at-66 numbers, for ages 66+ (again, ignoring inflation)
$50,000 -- SS PIA
$36,753 -- IRA withdrawal (backed into this to produce equal after FIT income)
$21,090 -- Taxable portion of SS, per FIT worksheet
$57,843 -- Adjusted Gross Income
$31,243 -- Taxable income, after standard deduction of $26,600
.$3,479 -- Tax, per tax rate schedule
$83,774 -- After FIT spendable income
Now the IRA withdrawals can be $15,247 lower, because the SS benefit is bigger.
Part of this is just the additional SS benefit of $12,500. The other $2,747 is the tax savings.
So deferring SS to age 66 led to an extra $1,195 of annual taxes for four years. And, led to reduced annual taxes of $2,747 in the remaining years. The payback on that is pretty high.
I think this is a quirky case where the SS benefit and IRA withdrawals happen to be in that band where small changes in non-SS income lead to significant changes in the taxable fraction of SS, and hence in taxes. (Or, it's the not-so-quirky case where I've just got a spreadsheet error.)
I wouldn't expect this extreme result in general. However, it seems to me the end case where incomes are so high that 85% of SS benefits are taxable in both scenarios leads to a trade-off that is identical to the basic benefit trade-off for deferring from 62 to 66.
At any rate, the lesson is that you should expect the tax savings at ages 62-65 that come from starting at 62 to be offset to some extent by extra taxes at ages 66+.
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Caveats:
"ignoring inflation" isn't trivial in this case. Since the factors that determine SS taxability aren't indexed, the tax savings after age 66 will erode with time.
* Yes, I know that the $26,600 is for people 65 and older, so It doesn't apply at 62. I wanted to use the same number for all years to simplify comparisons. I think the over 65 number is "conservative" for this example.