Skip to main content
No. of Recommendations: 4
First, I would like to thank those who advised me on my previous post requesting information on spousal Social Security.

The author of the book "Money Magic" has a web site, www.maximizemysocialsecurity.com, which for $40 calculates various scenarios given the actual annual Social Security earnings which can be obtained at MySocialSecurity.gov.

Given the importance of the decision, I decided to do this.

As advised by aj485 and BruceCM, I am not allowed to pause my benefit and also receive a spousal benefit based on DH's benefit. However, the web site advised that our cumulative individual and personal benefits could be maximized by both of us pausing our benefit now (Feb. 2022) and re-starting it at age 70. For DH, that would be late 2022. For me, that would be early 2024. The cumulative benefit was substantial -- $88,500 over the course of a lifetime projected to be 100 years.

Ah, but wait! The devil is in the details! The calculator did NOT show the year-by-year cumulative effect of following this strategy.

I copied the annual benefits into an Excel spreadsheet. I would miss almost 2 years of benefits, while DH would miss most of one year, a deep hole. The small increase in the benefit after age 70 gradually filled these large holes.

The breakeven point of this strategy is reached when we are 82-83 years old. After that, the benefits gradually accumulate, growing to the substantial cumulative benefit at age 100.

I feel that this calculator was useful in giving numbers for me to analyze. But I feel that the lack of annual cumulative numbers hides the detrimental effect of following the recommended strategy for those who don't expect to live a very long life.

The annual positive difference by waiting until age 70 produces a relatively small benefit after a long wait, but a significant negative difference if we die before age 80, as I expect we will.

I think this was a useful exercise. Of course, everyone will have a unique situation based on their income and life expectancy.

Wendy
Print the post Back To Top
No. of Recommendations: 22
After that, the benefits gradually accumulate, growing to the substantial cumulative benefit at age 100.

It is to laugh.

How many people live to 100?

How much more useful is the money now vs. the (larger) amount after 82-83?

The point of having money is to buy things and do things for your enjoyment. I submit that you get more enjoyment and use of extra money from 70-83 than 83-XX. Especially since XX is unlikely to be anywhere near 100.
Print the post Back To Top
No. of Recommendations: 2
Some of us look at it differently and like the longevity insurance factor. And if you don't live to 82-83, the "breakeven point", then so be it. You'll be dead anyway and won't be wallowing in sorrow that your insurance bet lost. But if you do make it, you will have had the extra dollars from age 70 on and will continue to enjoy the higher benefit into old age. I will note that if it just ends up going to the nursing home at or before the breakeven point, then you still effectively lost the longevity insurance bet.
Print the post Back To Top
No. of Recommendations: 5
How many people live to 100?

My Dad is 101, and just bought a new car in October. He's not showing any signs of slowing down anytime soon, although we all realize that could change at any moment. His mother lived to be 92, and his father lived to be 98. For my planning, I assume that I will make it to 100 so that I can ensure there will be enough money to live on. If I am wrong, my children will inherit more money, so I'm fine with that.


How much more useful is the money now vs. the (larger) amount after 82-83?

The point of having money is to buy things and do things for your enjoyment. I submit that you get more enjoyment and use of extra money from 70-83 than 83-XX. Especially since XX is unlikely to be anywhere near 100.


The implied assumption in your statement is that the additional money from collecting SS earlier will be spent and used to do something now. That's not true in my case as we already are not spending to the projected retirement budget, and yet we are doing whatever we want. So having more money earlier in my case does nothing to change our current standard of living. Instead, I plan to wait until 70 to collect my SS because I do view it as longevity insurance, and it is my want to make sure that I will continue to have enough money should I live as long as Dad or longer.

There is no one size fits all, and for some folks, collecting SS earlier makes sense, but for others such as me, waiting makes more sense. It all depends on the particular situation.
Print the post Back To Top
No. of Recommendations: 8
Rayvt asks,

<<After that, the benefits gradually accumulate, growing to the substantial cumulative benefit at age 100.>>

It is to laugh.

How many people live to 100?

How much more useful is the money now vs. the (larger) amount after 82-83?

The point of having money is to buy things and do things for your enjoyment. I submit that you get more enjoyment and use of extra money from 70-83 than 83-XX. Especially since XX is unlikely to be anywhere near 100.

</snip>


You're still misunderstanding the actuarial science. If I have a larger inflation-adjusted SS check when I'm age 80, I can safely withdraw more from my retirement saving at age 62. The question is which strategy gives you the most money over your expected lifetime.

The SS Administration says the increase in the monthly benefit for delaying from age 62 to 70 is actuarially neutral for the "average" benficiary. But the people with the retirement savings required to delay benefits to age 70 are almost exclusively high income earners who live 4 or 5 years longer than average.

For someone getting the max SS check it's about $100,000 extra ($200,000 if your spouse is collecting benefits off your earnings record.

That's a lot of money to leave on the table due to being ignorant of the arithmetic. It's at least equal to "free Obamacare." <lol>

intercst
Print the post Back To Top
No. of Recommendations: 5
Wendy
Good thinking.
If you begin benefits at FRA and invest all proceeds received, net of any tax on them as household income, up to age 70, and compare this with the higher benefit at age 70, the difference will be small, depending on your assumptions on investment returns and tax rates.

I've done several of these comparisons in Excel and I've never been able to see a significant difference.

BruceM
Print the post Back To Top
No. of Recommendations: 0
In your earlier post you said-
"I was treated for bilateral breast cancer at age 62, in 2015. My mother died of cancer at age 72 so I feel like I have a sell-by stamp on my butt. However, I have a cousin who has survived breast cancer for over 20 years after treatment so it's hard to say for sure."

You're already 6 years post-cancer. Your mother's fate isn't linked to yours. My grandfather died at 68 of a heart attack, but my Dad just turned 96 & is doing pretty well.

Just for fun, plug your data into a life expectancy calculator- you might be surprised by the number. https://www.blueprintincome.com/tools/life-expectancy-calcul... Obviously, just a guestimate, but it might help you realize that you aren't destined to check out at 72.

Have you tried running the numbers on just you taking a one year suspension of SSI? You'd sacrifice a year of SSI income in exchange for an 8% bigger check.
Not earth-shattering, but a middle way between doing nothing & both of you halting SSI for a total of three years.
I'd imagine the breakeven point would move to the left (earlier) in a big way.
Print the post Back To Top
No. of Recommendations: 4
You're still misunderstanding the actuarial science. If I have a larger inflation-adjusted SS check when I'm age 80, I can safely withdraw more from my retirement saving at age 62. The question is which strategy gives you the most money over your expected lifetime.

^ This is the part that gets overlooked all too often in these discussions. A while back I ran some scenarios in cFIREsim and each scenario showed that delaying SS either increased the SWR and/or improved portfolio survival.

At least for the inputs I used, if you want to spend the maximum amount of money in your early years, you should delay SS.
Print the post Back To Top
No. of Recommendations: 1
Just for fun, plug your data into a life expectancy calculator- you might be surprised by the number. https://www.blueprintincome.com/tools/life-expectancy-calcul...... Obviously, just a guestimate, but it might help you realize that you aren't destined to check out at 72. - SnootFool

------------------

That calculator was fun. I was surprised that it did not ask about the longevity of your parents. I have consistently heard that is a factor.

Also, the only specific chronic disease it asked about was diabetes, everything else about your health was captured in the overall health question. So all other things being equal being treated for high blood pressure or cancer would score the same.
Print the post Back To Top
No. of Recommendations: 2
I was surprised that it did not ask about the longevity of your parents. I have consistently heard that is a factor.

That was dispelled back in 2018 by a "big data" analysis of the Ancestry.com database performed by the geniuses at Google.

A Longer Life May Not Be in Your Genes
https://www.livescience.com/64018-longevity-genetic-question...

Long life spans tend to run in families, a phenomenon that's often attributed to people's genes. But now, a large new study of data from the genealogy website Ancestry reveals that genetics may play less of a role in life span than previously thought.

The reason? Previous studies failed to take into account a quirk of human relationships: that people tend select romantic partners with similar traits to their own. The findings mean that previous studies may have substantially overestimated the heritability of life span, the researchers said.

</snip>


Diet, exercise, and lifestyle choices are much more important than your genes.

intercst
Print the post Back To Top
No. of Recommendations: 1
Just for fun, plug your data into a life expectancy calculator- you might be surprised by the number. https://www.blueprintincome.com/tools/life-expectancy-calcul...... Obviously, just a guestimate, but it might help you realize that you aren't destined to check out at 72.

The most interesting thing with this calculator was that it pushed annuities for both DH and I, given how long they say we are going to live. I played with some of the questions and still got 93 for both of us, even after checking off "diabetic."

I wouldn't bet on this calculator.

IP
Print the post Back To Top
No. of Recommendations: 0
You're still misunderstanding the actuarial science.

I'm not sure he is. Rayvt is simply pointing out that **most** people, in fact the vast majority, do not live to 100. Is that a misunderstanding of actuarial science? What I get from Ray is that 62 may sometimes be a good age to take SS (not for me, BTW) v. waiting until 70 is always the right move.

I also agree with you about this: "Diet, exercise, and lifestyle choices are much more important than your genes." I've seen this over and over throughout my decades on earth.

Pete
Print the post Back To Top
No. of Recommendations: 0
I was reading recently, and now can't find the article (of course!), that in some circumstances one may want to take the option of "resetting" SS. Apparently you can do that. For example, you can start taking SS, and then "change your mind", repay the benefits, and start taking (increased) benefits at a later age.

Repaying the benefits received could be a problem for a lot of people. But I thought it was interesting that this option even existed.

1poorguy
Print the post Back To Top
No. of Recommendations: 3
What I get from Ray is that 62 may sometimes be a good age to take SS

What I have gotten from Ray's posts over the years is that 62 is always a good age to take SS.

PSU
Print the post Back To Top
No. of Recommendations: 3
What I get from Ray is that 62 may sometimes be a good age to take SS (not for me, BTW) v. waiting until 70 is always the right move.

Then you must be reading different posts from Ray than I have been because it seems to me that he has pretty much insisted that taking SS at 62 is the only way to go. From my reading, he does not consider that folks may have different circumstances for which a different choice is better.
Print the post Back To Top
No. of Recommendations: 1
Previous studies failed to take into account a quirk of human relationships: that people tend select romantic partners with similar traits to their own.

My wife is praying that quirk is incorrect.

AW
Print the post Back To Top
No. of Recommendations: 3
Rayvt is simply pointing out that **most** people, in fact the vast majority, do not live to 100. Is that a misunderstanding of actuarial science? What I get from Ray is that 62 may sometimes be a good age to take SS (not for me, BTW) v. waiting until 70 is always the right move.

Right. Very few people live to 100. And not that many life to 90.

Let's take the 2019 SSA table https://www.ssa.gov/oact/STATS/table4c6.html
Table says average life expectancy at 70 is 14.60 years. 62 is 20.28. 65 is 18.09.

Let's say that for Financially Independent people (ahem, like us) do better than this. As intercst says: "the people with the retirement savings required to delay benefits to age 70 are almost exclusively high income earners who live 4 or 5 years longer than average."
So let's shift the Avg Life Expectancy for 70 years old to the 65 YO figure.
Then avg life expectancy is 70 + 18 = 88.
Orig table LE is 70 + 14.6 = 85.

If we want to be really generous, use the LE for 62 year olds.
70 + 20 = 90.

Back to the table, ask what percentage of XX year olds live to 90.
70 YO's: 18,913 / 72,924 = 25.9%

If we use the figure for an extra 5 years, the number for 75 YO's:
18,913 / 63,739 = 29.7%

So for us 70 years olds that are high income earners who live 4 or 5 years longer than average, a little less than one-third of us will see 90.

That's what I can glean from the actuarial data. Maybe I'm all wet, though.
Print the post Back To Top
No. of Recommendations: 3
What I have gotten from Ray's posts over the years is that 62 is always a good age to take SS.

Bird in the hand.
Bird in the hand vs. 1.77 birds in the bush. Not even the 2.

SSA: "only 5% of men wait until 70, according to Social Security Administration data."

Those 95% of people see something that the 5% don't (or won't). The 5% assume that they are right and everybody else is wrong and stupid. And a lot of these 5% staunchly refuse to consider looking at it from the other people's point of view.


(Not actually "62" though. Actually the earliest age after you are retired.
Which, granted, is probably 62 for most financially independent folks. I retired at 58.)
Print the post Back To Top
No. of Recommendations: 0
...it seems to me that he has pretty much insisted that taking SS at 62 is the only way to go...

Well, if that is what he is saying, that 62 is always the best age to take SS, then I disagree with him as well. I do not think there is a "one size fits all" for taking SS benefits.

Pete
Print the post Back To Top
No. of Recommendations: 1
The most interesting thing with this calculator was that it pushed annuities for both DH and I, given how long they say we are going to live.

There's a good "side point" in this discussion: If you're tempted to buy an annuity, run the numbers of the annuity vs. delaying SS and living off the money you *would have spent* on that annuity. I know of one person who did that, and found he was money ahead the latter way.
Print the post Back To Top
No. of Recommendations: 0

Well, if that is what he is saying, that 62 is always the best age to take SS, then I disagree with him as well. I do not think there is a "one size fits all" for taking SS benefits.


Exactly. Different strokes for different folks. And that's what I've been saying.
Print the post Back To Top
No. of Recommendations: 6
When discussing life expectancy in the context of Social Security, it's critical to remember the S in OASDI- Survivor.
While the chance of any particular 70 year old reaching 90 or 95 may be relatively low, the odds that a married couple that age will have a surviving widow/widower who reaches 90 are quite high- about 45%.
I got that number from this Michael Kitces article, which links to a Joint Life Mortality Calculator excel file. https://www.kitces.com/blog/rigorous-analysis-of-pension-opt...

The spreadsheet is based on SSA's "Period Life Table 2004" which I assume is fairly conservative for 2022, since life expectancy tends to get longer over the years (post-USSR Russia excepted!).

An event that has almost a 1 in 2 chance of happening has to be planned for. I don't recommend playing Russian roulette with 3 bullets loaded!

Waiting until 70 to take SSI can be seen as an insurance policy for the couple, increasing the odds that the survivor never runs out of money since the increased benefit becomes the couple's survivor benefit.
Obviously, with health, diet & lifestyle issues YMMV to the point where claiming at 62 makes total sense.
My take: if you & your spouse are in average to above average health, planning for at least one you to reach 95 seems prudent.
Print the post Back To Top
No. of Recommendations: 0
Waiting until 70 to take SSI can be seen as an insurance policy for the couple, increasing the odds that the survivor never runs out of money since the increased benefit becomes the couple's survivor benefit.
Obviously, with health, diet & lifestyle issues YMMV to the point where claiming at 62 makes total sense.
My take: if you & your spouse are in average to above average health, planning for at least one you to reach 95 seems prudent.


And this is why, as I understand it, it makes a great deal of sense for many couples for the lower earning spouse to take benefits at 62 and the higher earning one to take benefits at 70. But it makes sense to run the numbers to see what works out the best for the couple's unique circumstances.
Print the post Back To Top
No. of Recommendations: 1
Bird in the hand.
Bird in the hand vs. 1.77 birds in the bush. Not even the 2.

SSA: "only 5% of men wait until 70, according to Social Security Administration data."

Those 95% of people see something that the 5% don't (or won't). The 5% assume that they are right and everybody else is wrong and stupid. And a lot of these 5% staunchly refuse to consider looking at it from the other people's point of view.


Delayed gratification is a powerful tool. Studies show that delayed gratification is one of the most effective personal traits of successful people. ... Over time, delaying gratification will improve your self-control and ultimately help you achieve your long-term goals faster.

https://www.psychologytoday.com/us/blog/your-emotional-meter....

Last time we discussed Roth Conversions and mentioned the tax rate changes when one goes from MFJ to Single filing, you acknowledged you had not taken that into consideration and finally realized you needed to do so. I don't see that analysis here. Did you ever get around to considering that?

IP
Print the post Back To Top
No. of Recommendations: 15
Last time we discussed Roth Conversions and mentioned the tax rate changes when one goes from MFJ to Single filing, you acknowledged you had not taken that into consideration and finally realized you needed to do so. I don't see that analysis here. Did you ever get around to considering that?

Considering what? Roth conversions or delayed gratification?

At some point you need to realize that you've run out near the end of the rope.

My mom -- a depression baby -- couldn't bear to spend her money right up to the end. We told her, "Mom, you and Dad saved all your life for a rainy day. Now Dad's dead and you are old, THIS is the rainy day you saved for. For goodness sake, spend some of it and enjoy it while you can."

As for us, we delayed our gratification from our 20's to our 60's. Now it is time to enjoy the gratification that we delayed.

Over time, delaying gratification will improve your self-control and ultimately help you achieve your long-term goals faster.

And when you've achieved your long-term goal, then what? Keep delaying? Why?

intercst keeps making a motte-and-bailey argument.
There is a minority of people who have the resources to delay SS. Some of these can just barely afford to. The others have so much money that they can easily afford to.

Those that can easily afford to have so much money that the extra SS benefit they collect is essentially pocket change.

There's 3 groups of people.
1) Those who cannot afford to defer SS. They need that money.
2) Those who can barely afford to defer. These are doing it on a shoestring.
3) Those who can defer without blinking.

Apparently group 1 is 95% of people.
Hence groups 2 & 3 are 5% of people.
Knowing the rapidity which money grows with compounding, I suspect that the majority of this 5% is in group 3.

The only group that needs to think seriously about deferring is group 2.
Group 1 doesn't need to think about deferring--because they can't defer.
Group 3 has no need to think about deferring--because they don't really need the extra SS benefit, they already have plenty enough.

Jim Cramer has a saying about stock management, "Sell them when you can, not when you have to."

The wife and I were talking about a related thing today. We are glad that we went on cruises in 2006 to 2019. If we had waited until nowadays, we'd be out of luck.
As long as you can afford it, do it now instead of putting it off for the future. When the future comes about, the opportunity may no longer be available.
Print the post Back To Top
No. of Recommendations: 4
Those 95% of people see something that the 5% don't (or won't).

Probably 95% of the 95% see an immediate need for income to support their current lifestyle. That's way different than making a choice to claim early, even if you don't need the income.

And a lot of these 5% staunchly refuse to consider looking at it from the other people's point of view.

And I could say the same about you, since you always seem to advocate for claiming early, no matter what the circumstances and motivations for any individual are.

AJ
Print the post Back To Top
No. of Recommendations: 8
Rayvt analyzes

intercst keeps making a motte-and-bailey argument.
There is a minority of people who have the resources to delay SS. Some of these can just barely afford to. The others have so much money that they can easily afford to.

Those that can easily afford to have so much money that the extra SS benefit they collect is essentially pocket change.

</snip>


That's right. It's those people who "can just barely afford to delay SS" are the ones that would benefit the most from the extra $100,000 to $200,000. That's why the widespread innumeracy is so damaging. An extra $100,000 for me is probably lost in the round off.

For example, if you have $500,000 in retirement savings and are in good health, it would make a world of sense to spend down half of that $500,000 to delay SS for as long as you can.

We see the same idiocy in the extra 300,000 unvaccinated people who have died of COVID since the vaccine was readily available in April/May of last year.

You make your choices and live with the results.

intercst
Print the post Back To Top
No. of Recommendations: 2
Last time we discussed Roth Conversions and mentioned the tax rate changes when one goes from MFJ to Single filing, you acknowledged you had not taken that into consideration and finally realized you needed to do so. I don't see that analysis here. Did you ever get around to considering that?
...
Considering what? Roth conversions or delayed gratification?


The impact of taxes when one spouse dies leaving the other to have to file single vs MFJ. You have always said that you pay taxes now or you pay taxes later, that the net result was the same after accounting for the lost investment income from paying taxes earlier than later via conversion. But you admitted that you had not taken into account the potential for one spouse to die before the other. With Roth conversions during MFJ taxes, you insure that money will not be taxed at single rates. Did you ever get around to considering that on the taxes for TIRA not converted to Roth?

As to the rest of your post, yes, so many different people, which is why it is important for the individual to look at their situation and run their numbers rather than use blanket platitudes to apply generically to everyone. IRAs, Traditional or Roth, are about the INDIVIDUAL as well as those who may inherit those funds, like a spouse. Therefore it is important to look at the pertinent issues for the individual and their beneficiaries. Not their mom, not their neighbor, not the cast of thousands you want to categorize into percentages, but those who have a present or future interest in the IRA.

The wife and I were talking about a related thing today. We are glad that we went on cruises in 2006 to 2019. If we had waited until nowadays, we'd be out of luck.

And would postponing SS until 65 or 70 have kept you from being able to take that cruise?

IP
Print the post Back To Top
No. of Recommendations: 10
The percentage of people who claim SSI at 62 has dropped fairly dramatically in the last 12-15 years or so. Conversely, the percentage of retirees claiming at Full Retirement Age (FRA) of 66 has risen.

Quotes taken from: https://www.daily-journal.com/life/family/the-most-and-least...

<<Age 62: This is the earliest you can sign up for Social Security and the most popular age. About 34 percent of women and 31 percent of men signed up for Social Security at 62.>>

Note: That's down from over 50% of people in 2005. https://money.usnews.com/money/retirement/social-security/ar...

7% claim at age 63, 7% claim at age 64, 12% claim at age 65.

There's a big bump at 66:
<<Age 66: This is FRA for people born between 1943-54. If you fit into this age group, you’re eligible to claim unreduced Social Security benefits. About 29 percent of men and 22 percent of women sign up for benefits at 66. But if your FRA is 67, you will get a 6.7 percent pay cut if you sign up here.>>

<<Age 67: People born in 1960 or later will be able to claim un-reduced Social Security payments starting at age 67. Baby boomers born before 1955 will get an 8 percent increase if they wait to claim their benefits at 67. Less than 4 percent of men and 3 percent of women start their benefits at this age.>>

The article hilariously fails to realize that 67 is an unpopular claiming age today because ZERO PERCENT of people with a FRA of 67 have turned 67! Morons. People with a FRA of 67 are a youthful & vigorous 61-62 today (like me!). I predict that 67 is gonna get real popular as a claiming age in 5 years.

2% claim at age 68, 2% claim at age 69.

<<Age 70 and older: Waiting until age 70 offers the biggest possible payout. About 9 percent of women and 6 percent of men held out until this age.>>

Bottom line, even though full deferral to 70 is still quite rare, even deferring until FRA represents a nice raise over the age 62 PIA, which suffers a 25% (66 FRA) or 30% (67 FRA) haircut.

Apparently, the word is getting out.
Print the post Back To Top
No. of Recommendations: 0
Is there a statistic of the number of people who are eligible but never claim - die before 62 ?

Looks like the data starts with claims. Is there any that starts with people who have 40 quarters paid in ?
Print the post Back To Top
No. of Recommendations: 1
According to the actuarial tables at social secuity.gov,about 13.5% of people born in 1957 did not live until 62. About 16.5% of men and 10% of women.


JK
Print the post Back To Top
No. of Recommendations: 0
According to this link- https://www.ssa.gov/policy/docs/ssb/v71n2/v71n2p17.html#mt8, 5.7% of SSI "never-beneficiaries' aged 62-84 died prior to receiving SSI, although they had accumulated the minimum 40 quarters of work to become eligible.

<<Categories of Never-Beneficiaries

To qualify for Social Security retirement benefits, a worker must accumulate 40 quarters of coverage (QCs). A QC is credited for a given dollar amount of earnings in covered occupations, rather than for a number of months worked. Nevertheless, accumulating 40 QCs requires at least 10 years because no more than 4 QCs can be credited in any year... Almost all (94.5 percent) of the never-beneficiaries aged 62–84 in 2010, for one reason or another, have not satisfied these requirements and thus do not receive benefits in 2010 (Chart 2). The remaining proportion of aged never-beneficiaries comprises individuals who are projected to be eligible for Social Security benefits, but die before receiving them.>>

Note: this number does not include people who die before 62.

I would assume the mortality rates for those dying before 62 skews heavily towards Blacks, especially Black men. Black male mortality in the 55-64 cohort is about twice as high as the white rate. (https://www.mdch.state.mi.us/osr/deaths/ageadjdxARS.asp)
In the 15-24 & 25-34 cohorts, Black male mortality is about three times higher the white rate, likely because of 9 mm-induced lead poisoning & drug ODs. OTOH, I imagine when you die at 25, lost Social Security income doesn't make your Top 5 List of Regrets. It sucks for the middle-aged workers, though.
Print the post Back To Top
No. of Recommendations: 0
Is there a statistic of the number of people who are eligible but never claim - die before 62 ?

Another two actuarial statistics that may help people decide when to take SS may be to look at the percentage of people, by demographics (race, sex, income), who take SS at 62 and die before 70, as well as those who take SS at 62 and die before the break-even point in cumulative benefit, which is about 79. In both those instances, the beneficiary is a winner, of course, and having waited until 70 not so much. I haven't seen anything directly about this, but it is likely somewhere in a table:)

https://smartasset.com/retirement/social-security-break-even...

Pete
Print the post Back To Top
No. of Recommendations: 1
Another two actuarial statistics that may help people decide when to take SS may be to look at the percentage of people, by demographics (race, sex, income), who take SS at 62 and die before 70, as well as those who take SS at 62 and die before the break-even point in cumulative benefit, which is about 79. In both those instances, the beneficiary is a winner, of course, and having waited until 70 not so much. I haven't seen anything directly about this, but it is likely somewhere in a table:)


This ignores the "longevity insurance" value of SS. If you die before you breakeven, you might have some regret on your death bed that you didn't have that extra SS available during your final years. But then you'll be dead, and no longer regretful. But if you live, you'll have maybe years and years of "insurance payoff" for deferring to age 70. It's not just about whether you breakeven or not.
Print the post Back To Top
No. of Recommendations: 2
I follow and appreciate your post/thinking.
Am paying tax today on IRA to Roth conversion for 3 reasons:
1. The file single vs. MFJ consequence
2. Projected IRA tax owed when I’m 72 higher than today with SS
3. Tax treatment of inherited Roths

Thanks for your post!
Paul
Print the post Back To Top
No. of Recommendations: 5
To my knowledge the ss breakeven point ignores the time value of money. In other words,there is no assumption that money not spent earns some return when ss is taken early. That is a glaring flaw in determining the breakeven point. I did this calculation once,and if I remember correctly the breakeven with a 6% return was 94 years old.


JK
Print the post Back To Top
No. of Recommendations: 2
I did this calculation once,and if I remember correctly the breakeven with a 6% return was 94 years old.

</snip>


I doubt 6% is a "risk-free" return. Essentially, you're delaying SS for 8 years (62 to age 70) in order to buy a 75% larger, inflation-adjusted life annuity. You need to be investing the monthly benefit from age 62 to 70 in something like an FDIC-insured CD that's going to guarantee that you have the money to "buy" the annuity at the end of 8 years. If I assume I can get 6% or 10% by investing the money in the stock market, it's not guaranteed. I could have an underwater portfolio when it came time to buy the annuity at age 70. That's where the understanding of actuarial science comes in. You're comparing a guaranteed benefit to a variable investment return.

intercst
Print the post Back To Top
No. of Recommendations: 2
The impact of taxes when one spouse dies leaving the other to have to file single vs MFJ. You have always said that you pay taxes now or you pay taxes later, that the net result was the same after accounting for the lost investment income from paying taxes earlier than later via conversion. But you admitted that you had not taken into account the potential for one spouse to die before the other. With Roth conversions during MFJ taxes, you insure that money will not be taxed at single rates. Did you ever get around to considering that on the taxes for TIRA not converted to Roth?

It's the same thing. Isn't it? I'm pretty sure it is.

When you take money out of a TIRA, it gets added to your taxable ordinary income (except for things specifically exempted, like QCD).
Same if you withdraw the money and spend it as if you convert it to a Roth. It gets added to your taxable income when it comes out of the TIRA.

If you leave the money in the TIRA then after one spouse dies, the survivor will be taxed at single rates when they withdraw it.



And would postponing SS until 65 or 70 have kept you from being able to take that cruise?

Good question. I don't really know. We spent around $250,000 on cruises. The SS we got from 62 to 70 was around $300,000.

I *do* know that we got around much better at 62. And *do* know that cruises were happening in those years. The last couple of years, NO CRUISES. Even now, traveling cnd cruises are very iffy. Lots of destinations are closed and/or restricted to tourists.

But it's not about me. NOBODY could take cruises inthe last couple of years.
Print the post Back To Top
No. of Recommendations: 0
Is there a statistic of the number of people who are eligible but never claim - die before 62 ?

Looks like the data starts with claims. Is there any that starts with people who have 40 quarters paid in ?


Google is your friend.

About 5.7% of workers who are projected to be eligible for Social Security benefits die before receiving them.
Print the post Back To Top
No. of Recommendations: 0
No ,I am comparing the guaranteed benefit with the lowest twenty year return of the S&P 500.The time period in question is the time between 62 and 82. I am very comfortable with my decision,and very clearly understand both the risk and reward of that decision. Having said that,everyone has a different set of facts to start with,and each person's decision will be different. This is not a black and white decision for anyone.

JK
Print the post Back To Top
No. of Recommendations: 4

And would postponing SS until 65 or 70 have kept you from being able to take that cruise?

Good question. I don't really know. We spent around $250,000 on cruises. The SS we got from 62 to 70 was around $300,000.


I think you missed what was being asked. Would you have been able to afford to take those cruises *without* your SS such that collecting it early actually did make a difference to you? If not, then you needed to be collecting that SS to do more. However, some of us like me would not be spending any additional money if we collect early, and so it does nothing to increase the standard of living as it seems it may have done for you.

I can agree with you that if collecting SS before 70 allows you to do more while you are younger, then go ahead and collect. But, as in my case, if it just means it's going to sit in the bank or a brokerage account because you are already not spending to the budget, then collecting earlier does nothing to improve your standard of living. Hence, I can treat it as longevity insurance and wait until 70.
Print the post Back To Top
No. of Recommendations: 2
This ignores the "longevity insurance" value of SS. ... It's not just about whether you breakeven or not.

Just how much is this "longevity insurance" worth?

As SnootFool said, You hang out here & at Bogleheads.org too long and you tend to forget you're swimming in a upper middle class/high net worth pool, for the most part.


How much is this "longevity insurance" worth to those in a upper middle class/high net worth pool?
Is it even worthwhile?

I get what intercst says about deferring SS is cheaper than the equivalent commercial annuity. But does it matter? If you are in a upper middle to high net worth pool, would you even be considering such an annuity in the first place?

It's like, going to the day-old bread store. Yes the bread is cheaper there...but does it matter to you financially? To poor people, yes. We used to go there all the time when we were young and poor.



I wish somebody, like intercst, would compute a real set of figures for a couple of scenarios of "person in upper middle to high net worth", instead of all the handwaving.

Maybe assumptions like: slightly above average -- $1m retirement portfolio, 20% above average SS benefit.
Well above average -- $2m or $4m retirement portfolio, SS benefit midway between average and maximum.

Maybe also: What is the minimum retirement portfolio that would comfortably allow someone to defer to 70?

Being reasonable. No assuming they run the portfolio down to $zero during the deferal period.


Sadly, I suspect this is a futile hope on my part. I suspect that nobody will bother to do any such computation. Handwaving is so much easier.
Print the post Back To Top
No. of Recommendations: 3
Is he hand waving or are you?

It costs nothing in terms of time, energy or effort to live well on what you do have while your inflation adjusted life annuity with full widow’s benefit rises in value by 8% per year.

Plus you can always change your mind whenever you want.

That still seems like an easy way for the spouse with the higher benefit to maximize your family assets with no additional effort at all. Especially since there is a better than 70% chance that one of the two spouses will outlive the break even point which is calculated on the life expectancy of only the higher earning spouse.
Print the post Back To Top
No. of Recommendations: 1
It's the same thing. Isn't it? I'm pretty sure it is.

When you take money out of a TIRA, it gets added to your taxable ordinary income (except for things specifically exempted, like QCD).
Same if you withdraw the money and spend it as if you convert it to a Roth. It gets added to your taxable income when it comes out of the TIRA.


But when you pay for the taxes for a Roth Conversion from a taxable account and convert the full transfer of the TIRA to the Roth, it's like being able to deposit the taxes paid from your taxable accounts into the Roth, even though no longer having earned income. This has the result of protecting the additional Roth balance from excessive taxation.

For example, we have been making Roth Conversions to the tune of about $250K per year in the past years post retirement. This brings us to the top of the 24% Federal tax bracket. Taking the current balances in our retirement accounts and compounding them by a very conservative 4% rate of return, one we are sure to exceed, over the number of years until we are forced to take RMDs, we are facing a tax rate of minimally 28% when RMDs are, well, mandatory. This assumes that taxes neither increase or decrease, (and I highly doubt they will decrease,) and that we are still both alive at the time and able to file MFJ vs the single tax rate, which would be considerably higher than 28% tax rate for the same income we would have received as a couple. And that is just for the first year of RMDs. As we get older, the taxes get bigger as the RMDs get bigger.

Add onto this the Trump tax brackets that if not made permanent will change back to the 2017 rates in 2025. Not a lot of years to take advantage of the bloated 24% Trump tax bracket. Worst case scenario is that we will not have hurt ourselves by paying taxes early via Roth Conversion. Best case scenario is that it will save us a considerable amount of money. It sure as heck will save our kids a considerable amount of money if we do not live long enough to spend our nest egg down. We travel together almost all the time post retirement, and correspondingly our risk of being taken out together on the interstate by a tractor trailer is not small, leaving the kids with a nest egg to inherit. Given the elimination of the stretch IRA for non-spouses, and the fact that at least one of our kids is in a higher tax bracket than 24%, Roth Conversions are a win from the inheritance POV. Not sure I would do this without taxable accounts to pay the taxes, but I did not investigate that option.

That said, since DH turns 63 this year and there is a 2 year look back period for Medicare, we may have made our last conversion. We will continue to track our income via spreadsheet and re-evaluate whether or not to do a Roth Conversion in December. I have investigated the impact of the higher income on Medicare expenses and will plug that into the analysis.

We can not control much in terms of income at this point other than the size of our RMDs. The roughly $60K we pay earlier than necessary in Federal taxes from our taxable accounts is now in our Roth and no longer taxable, (until of course it is, given the always possible changes to the tax law.)

I am far from saying that this is an approach for everyone, but everyone should run their numbers and evaluate their own situation by thinking outside the box. From what I've seen from you posting on the boards, unless it is all hot air and no substance, I would be shocked to find out that you could not benefit from Roth Conversions. Or perhaps it is too late already. And that is OK too, but I will continue to bang the drum to get people to look at their specific numbers in order to make an informed decision. I know that I was surprised when I ran ours, and just very happy that I did it as early as I did. It does no good to anyone to suggest they simply stick their head in the sand.

FWIW,
IP

needing to watch a movie now...
Print the post Back To Top
No. of Recommendations: 2
Rayvt-
<<I wish somebody, like intercst, would compute a real set of figures for a couple of scenarios of "person in upper middle to high net worth", instead of all the handwaving.
Maybe assumptions like: slightly above average -- $1m retirement portfolio, 20% above average SS benefit.
Well above average -- $2m or $4m retirement portfolio, SS benefit midway between average and maximum.

Maybe also: What is the minimum retirement portfolio that would comfortably allow someone to defer to 70?
Being reasonable. No assuming they run the portfolio down to $zero during the deferal period.

Sadly, I suspect this is a futile hope on my part. I suspect that nobody will bother to do any such computation. Handwaving is so much easier.>>

I'm a History major- figuring out a tip maxes out my math abilities, so don't expect any computing in this post.

This article is somewhat dated (2013), but it cites a study where retirees with $200K to $600K IRAs withdrew money to bridge the gap until taking SSI at 70.
You'd have to increase the IRA to account for inflation since 2013, but, in principle, the scheme should still work.
https://www.kiplinger.com/article/retirement/t051-c000-s004-...

<<The biggest beneficiaries of this strategy are retirees with portfolios of between $200,000 and $600,000, according to research by William Reichenstein and William Meyer, principals of consulting firm Social Security Solutions. For these retirees, Social Security represents a larger share of retirement resources than wealthier retirees, so delaying could have a stronger impact on a portfolio's longevity.>>

Part of the benefit of delaying SSI & withdrawing only IRA money in your 60s is avoidance of the SSI 'tax torpedo' in your 60s that's caused by mixing SSI money with IRA money, producing higher taxation of SSI due to how 'provisional income' calculation causes the SSI taxable percentage to rise from zero to 50% to 85%.

<<In this scenario, claiming early causes multiple costly problems. The reduced benefit means the retiree will have to withdraw more from his IRA, and since every dollar withdrawn is taxed, he'll have to withdraw even more to cover the tax bill. "It's a double whammy," Meyer says. "You are getting reduced Social Security benefits, and because you need to withdraw more from your tax-deferred account, it kicks up your provisional income and more of your [SSI] benefits are taxable.">>


Example of how delaying SSI to 70 increases the ratio of SSI to IRA income and reduces taxation in your 70s & beyond:

<<Consider this example from Mahaney. The Smiths and the Jacksons are 72-year-old couples who each have $69,000 in income. The Smiths, who claimed their Social Security early, take $45,000 from an IRA and collect $24,000 in SSI benefits each year. The Jacksons, who delayed claiming, get $39,000 in SSI benefits and take just $30,000 from their IRAs.

The Smiths' provisional income is $57,000 ($45,000 [IRA] and $12,000 [SSI]); the Jacksons' is $49,500 ($30,000 [IRA] and $19,500 [SSI]). Because the Smiths have more IRA income than the Jacksons, they have more income exceeding the tax triggers and a higher adjusted gross income. Assuming a 25% federal income tax rate, the Smiths will pay $6,060 in taxes each year, compared with $2,854 for the Jacksons.>>

What the article doesn't make clear is what withdrawal rate would the Jacksons (delaying SSI couple) have to use in their 60s to bridge the gap. If they start with a $700K IRA, the initial $69K is about 10% per year, well above the 4% SWR rule of thumb.

Psychologically, I think most retirees would need a lot of explaining & handholding before they'd commit to a plan that involved giving their IRA a 10% haircut for eight years straight, even if the math was solid.
Print the post Back To Top
No. of Recommendations: 2
Rayvt asks,

Maybe also: What is the minimum retirement portfolio that would comfortably allow someone to defer to 70?

The people who've studied this suggest it makes sense to spend down half your retirement savings to defer to age 70. For 2022, the max benefit at age 62 is $2,364/month -- $28,368/yr. You can increase that to $45,552/yr if a spouse is collecting benefits on the other partners SS earnings record.

So for someone getting the max SS check, you'd need about $800,000 in retirement savings to defer for the 8 years age 62 to 80, if you're spending down the $400,000.

If you only have $200,000 in retirement savings, it still makes sense to spend half of that to delay for as long as you can, maybe that $100,000 only gets you from 62 to 64 before you need to start benefits. It's still worth it when you compare taking a 4% SWR from a stock portfolio to an inflation-adjusted life annuity that you're purchasing at half-price from the SS Administration. Just like "free Obamacare", you're taking advantage of a pricing discrepancy in the system. But it's only available to those that understand the arithmetic.

intercst
Print the post Back To Top
No. of Recommendations: 3
I wish somebody, like intercst, would compute a real set of figures for a couple of scenarios of "person in upper middle to high net worth", instead of all the handwaving.

It's pretty easy to do this at https://cfiresim.com/. I ran a few scenarios with specifics for myself and found that delaying was enough better that I am waiting until 70 to claim.

Here's one pair of scenarios. $1M portfolio, SS for 2 people is $3000/mo at FRA, at age 62 get $2113, at age 70 get $3720, 95% success rate, historical data:
- retire at 62, take SS at 62, you get an annual inflation adjusted spending of $66,074
- retire at 62, take SS at 70, you get an annual inflation adjusted spending of $69,505

So for the same risk, waiting until 70 to take SS lets you spend $3431 more per year, every year. This is 5.2% more spending.

This kind of analysis focuses on the worst case scenario, the safe withdrawal rate. Waiting to take SS means withdrawing more from your portfolio in the early years, reducing the growth of the portfolio in the average and best case scenarios. The median final portfolio value taking SS at 62 is $1,652,055, while the median final portfolio value taking SS at 70 is $1,357,273, about $200K less. You've spent about $100K more so the cost of waiting is, on average, about $100K for your heirs. This highlights how waiting to take SS is a form of insurance, it's better in the worst situations but otherwise costly.

I would be interested in the results if others run their own scenarios. Maybe there are situations where waiting is a loser in terms of safe withdrawal rate.
Print the post Back To Top
No. of Recommendations: 2
Thanks, SnootFool.

The biggest beneficiaries of this strategy are retirees with portfolios of between $200,000 and $600,000 ... For these retirees, Social Security represents a larger share of retirement resources than wealthier retirees, so delaying could have a stronger impact on a portfolio's longevity.

Ooooh, I would consider that range to be "barely able". 4% annual withdrawal on $600,000 is only $24,000.


"tax torpedo." This occurs when IRA withdrawals trigger the taxation of Social Security benefits.

Okay, I have a problem here. When your AGI + 1/2 of SS benefit is more than $44,000 then your SS is 85% taxed. $44,000 is far below what a middle-upper income would be. So financially successful people are going to be above that and the "tax torpedo" is here.

Playing with some numbers, Avg SS benefit is $19,884, max is $38,880 (at FRA). Max is $50,328 for filing at 70.

Assuming middle-upper (or would that be upper-middle) is getting halfway between the ave and the max, that's $29,382.
Double that for a couple gets to $58,764.

Half that is $29,382. So other income more than $16,618 will push a couple into the 85% SS taxed. Upper-middle people most probably have much more other income than $16K.


What the article doesn't make clear is what withdrawal rate would the Jacksons (delaying SSI couple) have to use in their 60s to bridge the gap. If they start with a $700K IRA, the initial $69K is about 10% per year, well above the 4% SWR rule of thumb.

Another thing the article doesn't make clear is where the Jacksons got the money to live on in the years they deferred. Both got $69K of income. Smiths got $45K from IRA and $24K SS. Jacksons have to have gotten $69K from IRA.

If each started with $700K IRA at 62, Jacksons withdrew $192,000 more than Smiths did to 70.

At 70, (assuming 0% growth in the IRA) Smiths IRA balance is $340,000. Jacksons is $148,000.

Psychologically, I think most retirees would need a lot of explaining & handholding before they'd commit to a plan that involved giving their IRA a 10% haircut for eight years straight, even if the math was solid.

Jacksons IRA balance at 70 is 21% of what they started with. A 79% haircut.




So for someone getting the max SS check, you'd need about $800,000 in retirement savings to defer for the 8 years age 62 to 80, if you're spending down the $400,000.

Very few people get the max SS check. A more realistic amount would be midway between average and max.

If you only have $200,000 in retirement savings, it still makes sense to spend half of that to delay for as long as you can,

NOBODY is going to voluntarily spend down half their IRA to defer SS. Nobody. Especially people that only have $200,000 to start with.



It's still worth it to [take] an inflation-adjusted life annuity that you're purchasing at half-price from the SS Administration.

Could you provide some real & realistic numbers instead of just handwaving?
Like, how much does this annuity pay you. Is that amount large enough to be worth bothering with?
Print the post Back To Top
No. of Recommendations: 0
Rayvt asks,

<<intercst: It's still worth it to [take] an inflation-adjusted life annuity that you're purchasing at half-price from the SS Administration.>>

Could you provide some real & realistic numbers instead of just handwaving?
Like, how much does this annuity pay you. Is that amount large enough to be worth bothering with?

</snip>


spinning just posted this firesim site that allows you to run any scenario you like

It's pretty easy to do this at https://cfiresim.com/. I ran a few scenarios with specifics for myself and found that delaying was enough better that I am waiting until 70 to claim.

Here's one pair of scenarios. $1M portfolio, SS for 2 people is $3000/mo at FRA, at age 62 get $2113, at age 70 get $3720, 95% success rate, historical data:
- retire at 62, take SS at 62, you get an annual inflation adjusted spending of $66,074
- retire at 62, take SS at 70, you get an annual inflation adjusted spending of $69,505

So for the same risk, waiting until 70 to take SS lets you spend $3431 more per year, every year. This is 5.2% more spending.

If you know you're going to get a bigger SS check at age 70 and have more money to spend over your lifetime, you can still take that expensive cruise at age 62.

</snip>


intercst
Print the post Back To Top
No. of Recommendations: 0
I know intercst is adamant about this. And your sim supports it.

But what about opportunity cost? If you take SS earlier, you could use that money earlier and in the long run come out ahead. You're talking 5.2% more spending, but my market returns on my portfolio is a lot more than that most years. I could end up with a lot more money than what SS would be paying me if I delayed.

Just playing devil's advocate. Probably delaying is the "safe" route because it's a guaranteed return.

1poorguy
Print the post Back To Top
No. of Recommendations: 1
1poorguy,

But what about opportunity cost? If you take SS earlier, you could use that money earlier and in the long run come out ahead. You're talking 5.2% more spending, but my market returns on my portfolio is a lot more than that most years. I could end up with a lot more money than what SS would be paying me if I delayed.

</snip>


Yes. If you take SS at age 62 and invest it in the stock market, there's a chance that you'll get a higher return, but it's not guaranteed.

The reason the SWR is 4% instead of 10% is because of the variability of stock market returns.

At some purchase price, an inflation adjusted life annuity is an attractive retirement asset. If someone is willing to sell me one for 50% off what a commercial insurer would charge me, I'm a buyer.

I suspect that you'd find few military retirees who would be willing to cash in their pension so that they could play with the money in the stock market.

intercst
Print the post Back To Top
No. of Recommendations: 3
But what about opportunity cost? If you take SS earlier, you could use that money earlier and in the long run come out ahead. You're talking 5.2% more spending, but my market returns on my portfolio is a lot more than that most years. I could end up with a lot more money than what SS would be paying me if I delayed.

Just playing devil's advocate. Probably delaying is the "safe" route because it's a guaranteed return.


The issue is sequence of returns risk. The sequence of returns is even more important that the eventual rate of return. Delaying SS backstops a bad sequence in the early years, which means you can "safely" spend more money each year.

I did the same investigation that spinning did on cFIREsim a while back (don't have the numbers handy, sorry) for my personal situation and found the same thing: Delaying means you can spend more money.

Now, it seems reasonable that taking it early might work in other situations. But I'm confident that for me delaying is the better option.

This is somewhat backstopped by a financial advisor, which my wife gets access for free through work. For the various retirement he presented he always used the assumption of taking SS at 70. Once scenario was for us to retire right now, which I don't think my wife is buying into.
Print the post Back To Top
No. of Recommendations: 1
This thread has been interesting to read; however, it hasn't had much impact on those that think that 62 is the ideal age to claim Social Security Workers benefit and those that think 70 is the best age.

I could have claimed my Social Security Workers Benefit at age 62. I didn't because I wasn't ready to quit working and retire. Had I claimed at 62, I would have received no benefits until FRA at age 66 due to my salary as a Software Engineer. I didn't get around to retiring until after I turned 68 and my wife turned 66. This resulted in me having over 35 years of wage inflation adjusted income exceeding the cap on Social Security income.

They were several commenters mentioning SSI in this thread. The Supplemental Security Income (SSI) is an assistance program run by the Social Security Administration to assist families and individuals that are disabled and unable to work. This has nothing to do with Social Security retirement benefits.

Also, there were several comments about "break even points" in this thread. It is a somewhat meaningless exercise as earned but unclaimed COLA is applied after your PIA is calculated to arrive at your Social Security benefit. In my case by retiring at 68, my Social Security benefit was increased after applying earned COLA to mt PIA amount by 15.3% making my benefit essentially equal to what Social Security estimated my PIA amount would be at age 70. It only took 8 years for my cumulative benefits to exceed what I would have received by retiring and claiming at 62.

As several have said in this thread, you need to make your own calculations to determine what is the best age for claiming Social Security benefits.
Print the post Back To Top
No. of Recommendations: 0
MCCrockett-
<<They were several commenters mentioning SSI in this thread. The Supplemental Security Income (SSI) is an assistance program run by the Social Security Administration to assist families and individuals that are disabled and unable to work. This has nothing to do with Social Security retirement benefits.>>

Guilty as charged! Didn't mean to muddy the waters, I just was trying to abbreviate Social Security Income without getting carpal tunnel syndrome. I didn't realize that abbreviation had been claimed already.
Social Security must be staffed a lot of ex-military types- the acronyms & abbreviation would choke a goat. My bad.
Print the post Back To Top
No. of Recommendations: 3
Rayvt-
<<"tax torpedo." This occurs when IRA withdrawals trigger the taxation of Social Security benefits.

Okay, I have a problem here. When your AGI + 1/2 of SS benefit is more than $44,000 then your SS is 85% taxed. $44,000 is far below what a middle-upper income would be. So financially successful people are going to be above that and the "tax torpedo" is here.

Playing with some numbers, Avg SS benefit is $19,884, max is $38,880 (at FRA). Max is $50,328 for filing at 70.

Assuming middle-upper (or would that be upper-middle) is getting halfway between the ave and the max, that's $29,382.
Double that for a couple gets to $58,764.

Half that is $29,382. So other income more than $16,618 will push a couple into the 85% SS taxed. Upper-middle people most probably have much more other income than $16K.>>

Plug some numbers into one of these Social Security Taxable Benefits Calculators-
https://www.dinkytown.net/java/social-security-taxable-benef...
https://www.covisum.com/resources/taxable-social-security-ca...
With $50K SSA income & $20k 'other' income, $6,850 of Social Security is taxable.
Flip those numbers ($20k SSA & $50K 'other' income)= $17,000 of Social Security is taxable.

The ratio matters- lots of Social Security & a smaller amount of 'other' income results in low taxation of Social Security.
Reverse the ratio & it gets uglier.

Get to $70K with $35K of SSA & $35K other income, $13,225 of SSA money is taxable.

Of course, in the real world, most people who receive an above average Social Security PIA, also have some combination of dividend/cap gains, rental income, pensions, TIRA distributions, etc. as to make it tough to avoid higher taxation of Social Security.

But, at least theoretically, by living off TIRA distributions from 62 to 70, you avoid all SSA taxation for eight years by the simple expedient that you don't have any Social Security income.
After 70, your increased PIA (theoretically) allows for lower taxation of Social Security because your 'other' income now makes up a smaller ratio of the whole with your 24%-32% juiced up benefit.
Print the post Back To Top
No. of Recommendations: 0
I wish somebody, like intercst, would compute a real set of figures for a couple of scenarios of "person in upper middle to high net worth", instead of all the handwaving.

Maybe assumptions like: slightly above average -- $1m retirement portfolio, 20% above average SS benefit.
Well above average -- $2m or $4m retirement portfolio, SS benefit midway between average and maximum.

Maybe also: What is the minimum retirement portfolio that would comfortably allow someone to defer to 70?

That would absolutely depend on your expenses, which are not the same for anyone.

The first time we sat down with a financial planner that wanted our business we told him our goal of retiring in our 50's. "You can't do that." he said. "Why not?", I asked. "You need 85% of your current income in retirement." "But we don't spend that much now, so why should we need it when retired?" By that time we were saving about 50% of our income, which is not really that tough when you are content with life and have banked your bonuses and raises rather than raise your standard of living to outpace your income. "Run the numbers.", I told him.

Sure enough he came back a week later and lo and behold we could indeed retire in our 50's. I wasn't surprised, but he was.

RUN YOUR NUMBERS. YOUR numbers. It's been discussed many times on this board and others just how to do that. Why do you care about someone else's? It's got nothing at all to do with yours.

IP,
really not understanding the problem with that
Print the post Back To Top
No. of Recommendations: 1
Sorry, resubmitted with proper formatting.


I wish somebody, like intercst, would compute a real set of figures for a couple of scenarios of "person in upper middle to high net worth", instead of all the handwaving.

Maybe assumptions like: slightly above average -- $1m retirement portfolio, 20% above average SS benefit.
Well above average -- $2m or $4m retirement portfolio, SS benefit midway between average and maximum.

Maybe also: What is the minimum retirement portfolio that would comfortably allow someone to defer to 70?


That would absolutely depend on your expenses, which are not the same for anyone.

The first time we sat down with a financial planner that wanted our business we told him our goal of retiring in our 50's. "You can't do that." he said. "Why not?", I asked. "You need 85% of your current income in retirement." "But we don't spend that much now, so why should we need it when retired?" By that time we were saving about 50% of our income, which is not really that tough when you are content with life and have banked your bonuses and raises rather than raise your standard of living to outpace your income. "Run the numbers.", I told him.

Sure enough he came back a week later and lo and behold we could indeed retire in our 50's. I wasn't surprised, but he was.

RUN YOUR NUMBERS. YOUR numbers. It's been discussed many times on this board and others just how to do that. Why do you care about someone else's? It's got nothing at all to do with yours.

IP,
really not understanding the problem with that
Print the post Back To Top
No. of Recommendations: 1
So financially successful people are going to be above that and the "tax torpedo" is here.


+++
+++


That's a minor flesh wound compared to what "IRMAA"

https://www.google.com/search?client=firefox-b-1-d&q=soc...

will do to your monthly Social Security direct deposit!



AND, if that isn't bad enuff for ya, run the income tax numbers as single (as opposed "married filing jointly") which will happen when one spouse dies.



Yup, the only guarantees in life: Death & Taxes.




sunrayman
part-time pessimist
Print the post Back To Top
No. of Recommendations: 3
But what about opportunity cost? If you take SS earlier, you could use that money earlier and in the long run come out ahead. You're talking 5.2% more spending, but my market returns on my portfolio is a lot more than that most years. I could end up with a lot more money than what SS would be paying me if I delayed

The media 96 month (8 years) S&P 500 return 1950 to 2017 was 10.2%.
Including inflation, the media was 6.0% above inflation.

Worst case 8 years was -4.6% or -6.9% above inflation. So it is possible to come out worse.

Maximums were 20.8% and 16.2% above inflation.

At 6.0% above inflation, the break-even point is age 98.




Just playing devil's advocate. Probably delaying is the "safe" route because it's a guaranteed return.

Guaranteed......until the SSA cuts benefits because they ran out of money. Currently projected in 2035.
... and/or until Congress changes the laws relating to SS.
Print the post Back To Top
No. of Recommendations: 0
... "the median was 6.0% above inflation."
Print the post Back To Top
No. of Recommendations: 1
So… my husband is one of those rare people who will end up with a pension when he retires. Like 25K. I have two rentals. Barring any changes we’ll probably be near 44K a year even taking nothing from our 401K. You’re saying our SS payments if we take them will all just be going to taxes? That’s sad. No point even thinking of taking it early…
Print the post Back To Top
No. of Recommendations: 2
You’re saying our SS payments if we take them will all just be going to taxes?

I don't think you read that right. When you cross a certain income threshold, then 85% of your SS becomes taxable income. That's not the same thing as saying that 85% of your SS is paid to taxes. These are very different statements with very different results.
Print the post Back To Top
No. of Recommendations: 10
You’re saying our SS payments if we take them will all just be going to taxes? That’s sad.

No, that's not what was said, nor is it what will happen. Under current law, at most, 85% of SS will be taxable. And then you have to apply the appropriate tax rate. So, if you put your taxable SS at the top of your ordinary income stack, and it's all taxed in the 28% bracket*, then 23.8% of your SS payment will go to taxes. That's much less that 'all'. Of course, it's also ignoring the fact that DH's pension and your rental income (at the bottom of the ordinary income stack) were taxed 0%, 15% and 25%, so your average ordinary income tax rate will probably be more in the 15% - 20% range, so that's probably a more appropriate rate to apply. If we presume that 85% of your SS income is taxed at an average of 18%, that means that your SS income is taxed at 15.3%

*Presuming that you will be taking SS after 2026, when, under current law, the brackets will revert to the pre-TCJA brackets.

No point even thinking of taking it early…

If the taxability of SS is what tips your decision on when to take it, you probably should take it early. That's because by taking SS early, the annual income will be lower, and lower income generally results in paying less in taxes.

AJ
Print the post Back To Top
No. of Recommendations: 1
"You need 85% of your current income in retirement."

Does anyone know how this "rule" came about?

Prior to retirement only 52% of my gross salary ever made it into my bank account. It struck me as absurd to suddenly need to replace 85% of my gross salary after I retired.
Print the post Back To Top
No. of Recommendations: 0
MCCrockett:

{{{"You need 85% of your current income in retirement."}}}

"Does anyone know how this "rule" came about?"

I always heard 80% not 85%. And I think that it was a quick, back of the envelope, WAG that said no more FICA - 7.65%, no need to save 10% of income for retirement (aggregate 17.65%), and you will no longer need work wardrobe and related expenses (commuting, parking?, lunch out?) - let's call it 20% total and say you need 80%.

"Prior to retirement only 52% of my gross salary ever made it into my bank account. It struck me as absurd to suddenly need to replace 85% of my gross salary after I retired."

How much of the 48% was for expenses that would continue post retirement, but would no longer be payroll deductions?

Regards, JAFO
Print the post Back To Top
No. of Recommendations: 0
Prior to retirement only 52% of my gross salary ever made it into my bank account. It struck me as absurd to suddenly need to replace 85% of my gross salary after I retired.

Exactly.

IP
Print the post Back To Top
No. of Recommendations: 5
"Your results (needs) may vary"

I'm going to interject and cross post on this:
But first thanks to all of you for your thoughtful replies.

#1- my FP is my tax accountant (CPA). He gets nothing from his advice but $400 and the opportunity to do my (super simple) tax return for another couple hundred bucks.
#2- I don't own any stocks or funds that that are not in either a 401k or Roth.
#3- The FP (tax accountant) was consulted specifically because I don't know what is taxable and what isn't in the normal course of a normal retiree's life. The investments, the drawdown (if any), etc...that information has to come from elsewhere.
#4- re the 521, I mentioned it to him. He agreed. Perhaps he knows that it's 12 months (or it isn't only within 12 months) or/and it will not change his calculus. I will investigate further. Thatnks very much for the heads-up on that!!
#5- his over-riding theme: "I've seen too many worrying about their money until they suddenly drop dead, and then they stop worrying about it." Like I said, he's not young (pushing 70). He's seen enough like us to know that we have enough...and he knows how we live.

So the relevance to this thread is that we have the same experience as MCCrockett. There was a big warning on YahooFinance basically saying, "sure, go ahead and retire, but you better be ok with only $X dollars per year." I looked at that and said "gee, we've never spent that many dollars in a year."

There is just tons of information out there, and frankly I like the MF calculators as a good place to start. Everyone offering advice make all sorts of assumptions but a lot of it comes down to how we have organized our lives and the habits we practice. As previously noted, in my family, even though we have been one income since 2007 and that income is about $55k/year in the Northeast US, an expensive part of the country, we can still save...a lot. And none of it is in taxable accounts.

I recognize many of you from other boards, so you may have read me say this before: living tax advantaged means that your kids get scholarships (no left-over money at the end of the month to repay college extortion), but you have to be willing to drive older cars, live in more modest houses and generally just don't buy stuff. New, added bonus- In retirement, our Obamacare plan will cost us $11/month (exactly the same plan as I had with my employer at $20k per year). And to be clear, I did not mis-type that...$130 bucks a year. We're poor, ya know?

Lest you think we live some meager existence, we own a nice (not big) house, we put solar on the roof, it's on a beautiful bit of land in a nice small city in a tourist area with tons of cultural amenities, but where most things are still owned by locals (stores and restaurants, etc). We have a choice of fine (locally owned) markets where we buy local and organic foods, not much meat, and live what can only be characterized as a "privileged life." And we do have 6 months of expenses in our checking account and only use a credit card for our own convenience, etc. I'm sure you all are down with that. Lastly, up until the pandemic put the ki-bosh on it, we'd traveled to New Zealand every year since 2012 (for fun). We expect to get back there soon.

So, MCCrockett- I'm with you...not everybody spends like a millionaire, on the hamster-wheel of more more more. But we have a privileged life just the same, for which we are very grateful.

-Randy
Print the post Back To Top
No. of Recommendations: 2
"Prior to retirement only 52% of my gross salary ever made it into my bank account. It struck me as absurd to suddenly need to replace 85% of my gross salary after I retired."

How much of the 48% was for expenses that would continue post retirement, but would no longer be payroll deductions?

None of the 48% was for expenses that would continue with the exception of Medicare Part B and Part D premiums withheld from my Social Security retirement benefit that started the month after I retired. The Medicare premiums replaced the overly expensive corporate medical insurance that stopped on my retirement.
Print the post Back To Top
No. of Recommendations: 2
Prior to retirement only 52% of my gross salary ever made it into my bank account.

I will point out that tax withholdings never make it into your bank account, but still pay for expenses that will need to be accounted for, even in retirement. For those who are relatively high paid and live in a high tax location like CA or NYC, tax withholdings could easily be 25% of gross salary - which would get you up to 77% Yes, that's not quite 85% (or what I've more commonly seen, which is 80%). But it doesn't account for things like health insurance premiums withheld from your paycheck that you will still have to pay for in retirement.

That said - money going into your bank account isn't necessarily money that gets spent. If you invested 20% of your gross salary into taxable accounts after it hit your bank account without building up any debt, then you were spending, at most, 32% of your gross salary after it hit your bank account. That still doesn't show what your expenses in retirement will be, because you would need to add back the taxes, and any additional spending (like travel and, possibly, healthcare) that you will spend in retirement.

On it's own, pointing to the percentage of your gross salary that went into your checking account is just as bad of a way to estimate your income needs in retirement as saying you'll need 85% (or 80% - I've seen both) of your pre-retirement income.

AJ
Print the post Back To Top
No. of Recommendations: 3
On it's own, pointing to the percentage of your gross salary that went into your checking account is just as bad of a way to estimate your income needs in retirement as saying you'll need 85% (or 80% - I've seen both) of your pre-retirement income.

I agree, and I have to admit that I never understood using some percentage of gross income to figure income needs in retirement. I took the opposite approach. I looked at what we spent on various categories each year (Quicken was a great help with this), and used the high water level on the various categories as a basis to start. From there, I adjusted by getting rid of things that would not be expenses in retirement (mortgage, life insurance) and adding or increasing categories where I anticipated we would spend money because we had time in retirement for more hobbies. Hence, I did things like doubled the golf line. When I was done, my retirement budget, which includes all expenses (even taxes) ended up about 40% more than our pre-retirement spending. I used that as our planning number, and when the 4% SWR covered that, I retired.

In reality, we have been way underspending in retirement, but some of that is due to the pandemic because we can't do some things, but I knew that the budget had fat, and I didn't want to have to worry about if we could afford anything in retirement.

But I much preferred building the retirement budget and the associated savings goal off of our actual spending rather than as some arbitrary percentage of gross income. Different strokes for different folks, I guess.
Print the post Back To Top
No. of Recommendations: 1
On it's own, pointing to the percentage of your gross salary that went into your checking account is just as bad of a way to estimate your income needs in retirement as saying you'll need 85% (or 80% - I've seen both) of your pre-retirement income.

</snip>


No kidding. The last few years before I retired I was saving 50% of gross salary, lost 25% of gross to state and Federal income taxes plus FICA, and I lived comfortably on the remaining 25%.

intercst
Print the post Back To Top
No. of Recommendations: 2
Okay, I have a problem here. When your AGI + 1/2 of SS benefit is more than $44,000 then your SS is 85% taxed. $44,000 is far below what a middle-upper income would be. So financially successful people are going to be above that and the "tax torpedo" is here.

Depends on how much of their total income the upper middle income taxpayer is getting from Roth withdrawals vs. Traditional withdrawals and other sources like pensions. Income does not necessarily translate directly to taxable income. For those who spend their early retirement (before taking SS) doing significant Roth conversions, especially at the currently low tax rates, they may still be able to avoid significant taxation of their SS benefit. Doing significant Roth conversions while collecting SS will likely result in taxation of 85% of the SS benefit, so that's another item that should be considered when making the 'when should I take SS' decision.


That said, unless the SS benefit taxation limits are changed, either to a higher static level or by being indexed to inflation, at some point, everyone who gets SS will be taxed on it.

AJ
Print the post Back To Top
No. of Recommendations: 1
Depends on how much of their total income the upper middle income taxpayer is getting from Roth withdrawals vs. Traditional withdrawals and other sources like pensions. Income does not necessarily translate directly to taxable income.

Fidelity & others say the best order of taking withdrawals is:
1st: taxable investment accounts (take advantage of low capital gain tax rate)
2nd: tax-deferred. 401k, IRA (leave the Roth money to grow tax-free)
last: Roth IRA

Pensions, etc. are of course taxable income.

Also, most of your retirement years you will be taking RMD's. Upper middle income people will probably have large IRA balances, so their RMDs will be substantial. The age 75 RMD on a $1,000,000 IRA is $41,000 (only $34,850 is taxed).
Let's make sure we don't mix income levels in these discussions---we are talking about upper middle income. None of us here plan to be below average net worth.



Income does not necessarily translate directly to taxable income.

True. But that money is going to be taxed *sometime*. All you can do is fiddle with *when* you pay the tax. It's not honest or informative to push that time out beyond the the period under discussion so you can ignore it.
Print the post Back To Top
No. of Recommendations: 5
Rayvt analyzes,

Fidelity & others say the best order of taking withdrawals is:
1st: taxable investment accounts (take advantage of low capital gain tax rate)
2nd: tax-deferred. 401k, IRA (leave the Roth money to grow tax-free)
last: Roth IRA

True. But that money is going to be taxed *sometime*. All you can do is fiddle with *when* you pay the tax. It's not honest or informative to push that time out beyond the the period under discussion so you can ignore it.

</snip>


Not really. Capital gains you're able to defer to death get a tax-free stepped up basis to your heirs. That lack of taxation is the source of the vast majority of the nation's multi-generational, inherited wealth. Not whatever productive activity the first generation worker bees were up to.

intercst
Print the post Back To Top
No. of Recommendations: 8
Fidelity & others say the best order of taking withdrawals is:
1st: taxable investment accounts (take advantage of low capital gain tax rate)
2nd: tax-deferred. 401k, IRA (leave the Roth money to grow tax-free)
last: Roth IRA


Again - a rule of thumb that is not necessarily correct, just like the rule of thumb that you will *need* to replace 80% of your pre-retirement income for retirement.

Each taxpayer should use their own circumstances to determine what is best for their circumstances.

That said - if a taxpayer follows this rule of thumb, by the time they get down to spending their Roth account and presumably are also taking SS, they could very well not be taxed on their SS. So, I'm not sure how you providing this rule of thumb actually disputes what I said.

But that money is going to be taxed *sometime*.

Maybe, maybe not. As I've pointed out before, those who are self-funding long term care can have significant medical expenses that can offset the taxability of RMDs. Those using Roth accounts to pay these expenses effectively paid more taxes than they needed to, because they get little/no benefit from the medical deduction. So, even though there seems to be a push for people to have *all* of their retirement money in Roth accounts, it could be best for taxpayers who are planning on self-funding long term care to leave some money in Traditional accounts.

It's not honest or informative to push that time out beyond the the period under discussion so you can ignore it.

Nor is it honest or informative to ignore the fact that, under current law, tax rates will return to the previous higher brackets in 2026, and that fiddling with when you pay the taxes may result in lower overall taxes being paid by taking advantage of the lower rates.

AJ
Print the post Back To Top
No. of Recommendations: 1
But I much preferred building the retirement budget and the associated savings goal off of our actual spending rather than as some arbitrary percentage of gross income.

Same (big shock ;) but in my case, we came off 10 years of college with two double years, my husband was diagnosed a few months later and died about 18 months later. While I knew about SEPP, I didn't want to start and it was an interesting time for a few years until I hit 59.5. Not sure exactly how I did those years but always being used to LBMM, I suspect what I had was what I had.

Now that I am mid-ish 60s, I definitely spend more and when travel fully opens, I will spend like a drunken sailor.

The percent thing was the weirdest to me was the percent spent on cars. Wackiest thing ever.
Print the post Back To Top
No. of Recommendations: 1
Rayvt notes:

Fidelity & others say the best order of taking withdrawals is:
1st: taxable investment accounts (take advantage of low capital gain tax rate)
2nd: tax-deferred. 401k, IRA (leave the Roth money to grow tax-free)
last: Roth IRA


If you are upper-middle class, already subject to RMD withdrawals, your spouse has died, and your beneficiaries are you children; the above doesn't make sense. It makes more sense to withdraw in the following order:

1st: tax-deferred 401(k) and IRA accounts.
2nd: tax-exempt Roth IRA accounts.
3rd: taxable investment accounts.

Reducing the tax-deferred 401(k) and IRA accounts reduces the amount of taxable income that your beneficiaries will need to withdraw over a 10 year period.

While there isn't a tax penalty to your beneficiaries they are still required to withdraw all monies from a Roth IRA in 10 years. (I don't have any Roth accounts, so I'm not sure about the 10 year period.)

Beneficiaries of assets in the taxable investment accounts receive a new cost basis when you die. They can retain the assets for as long as they like. They only need to pay taxes on their qualified dividends and their capital gains when they sell the assets.
Print the post Back To Top
No. of Recommendations: 1
If you are upper-middle class, already subject to RMD withdrawals, your spouse has died, and your beneficiaries are you children; the above doesn't make sense. It makes more sense to withdraw in the following order:

1st: tax-deferred 401(k) and IRA accounts.
2nd: tax-exempt Roth IRA accounts.
3rd: taxable investment accounts.

.
.
.

Beneficiaries of assets in the taxable investment accounts receive a new cost basis when you die. They can retain the assets for as long as they like. They only need to pay taxes on their qualified dividends and their capital gains when they sell the assets. - McCrockett


----------------------

??? It seems to me that withdrawing Roths last is optimal. Your heirs effectively get a stepped up basis at the point of withdrawal from the Roth, which is up to ten years after the basis would be established for the inherited taxable account.
Print the post Back To Top