CSRS and SS, check my logic

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heerekj1
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CSRS and SS, check my logic

Post by heerekj1 »

My wife is retired and has a Civil Service Retirement System pension and is not eligible for Social Security. I am pretty close to retiring and am eligible for Social Security. Because of the size of her pension, she will not be eligible to take my SS pension when I die. I had always planned on waiting until 70 to take SS but when I did the math, it would take until I am into my 80's before the taking at 70 was advantageous for me. Since she won't get it anyway there is no sense building it up for her.

I am thinking that I should take it at my normal retirement age (66). Is my logic flawed?

Thanks
sscritic
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Re: CSRS and SS, check my logic

Post by sscritic »

No. Given the size of her pension (I am taking your word for it), you are essentially a single person as far as SS is concerned. So do what a single person would do.

But first answer this: if she dies, what do you get? If you get nothing, you, as a single person, may want to delay. I am not saying if she dies today, but if she dies when you are 75, do you want your age 66 benefit or your age 70 benefit? Now if you get 100% of her pension, there is probably no good reason to delay. This is top of the head stuff, so you need to look at your actual numbers.
Topic Author
heerekj1
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Re: CSRS and SS, check my logic

Post by heerekj1 »

I get 50%.
sscritic
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Re: CSRS and SS, check my logic

Post by sscritic »

heerekj1 wrote:I get 50%.
So what income needs will you have as a widower? Is 50% of hers plus your age 66 SS plenty? [You didn't mention any other assets, but I assume they are some and that when looking at your income needs you are including them.]

Now maybe the odds are that you will be long gone by the time she dies, so you have to think about the odds as well as a worst case scenario from your point of view.
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heerekj1
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Re: CSRS and SS, check my logic

Post by heerekj1 »

I will have a sizable 403B/IRA and my minimum distribution along with SS and 50% of CSRS will more than cover current/anticipated expenses.
Professor Emeritus
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Re: CSRS and SS, check my logic

Post by Professor Emeritus »

heerekj1 wrote:I get 50%.
if it is CSRS you should get 55%
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Re: CSRS and SS, check my logic

Post by JW-Retired »

heerekj1 wrote: Because of the size of her pension, she will not be eligible to take my SS pension when I die. I had always planned on waiting until 70 to take SS but when I did the math, it would take until I am into my 80's before the taking at 70 was advantageous for me. Since she won't get it anyway there is no sense building it up for her.

I am thinking that I should take it at my normal retirement age (66). Is my logic flawed?
Maybe it is flawed if you did not account for the different taxation of SS income versus pension/RMD income. This varies depending on the amount of your SS versus non-SS income streams. In some middle income ranges an extra $10k of RMD income might be taxed at 5X the rate of a like increment of SS income. Once you get to the point where 85% of your SS is taxed this effect goes away.

You could run some "what if" cases through TaxCaster to see if you are going to be in a range where SS income is highly favored.
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Sbashore
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Re: CSRS and SS, check my logic

Post by Sbashore »

Professor Emeritus wrote:
heerekj1 wrote:I get 50%.
if it is CSRS you should get 55%
55% is the max. You can specify any percentage below that.
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M_to_the_G
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Re: CSRS and SS, check my logic

Post by M_to_the_G »

The prettiest-sitting Feds are those who joined pre-1983, did not take the bait when the government offered them the "fabulous" option of switching to FERS, AND maxed out their TSPs (without match). I know a few... sittin' very pretty. :) Alas, I joined in 2008...
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Sbashore
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Re: CSRS and SS, check my logic

Post by Sbashore »

M_to_the_G wrote:The prettiest-sitting Feds are those who joined pre-1983, did not take the bait when the government offered them the "fabulous" option of switching to FERS, AND maxed out their TSPs (without match). I know a few... sittin' very pretty. :) Alas, I joined in 2008...
Yeah I know some. :happy
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Re: CSRS and SS, check my logic

Post by retiredjg »

heerekj1 wrote:Because of the size of her pension, she will not be eligible to take my SS pension when I die.
Really? No survivor benefit because she has a CSRS pension? That does not make sense to me.
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Re: CSRS and SS, check my logic

Post by sscritic »

GPO:
Your Social Security benefits will be reduced by two-thirds of your government pension [from uncovered work]. In other words, if you get a monthly civil service pension of $600, two-thirds of that, or $400, must be deducted from your Social Security benefits.
Say her pension is $6,000. Her social security will be reduced by $4,000. His survivor benefit would have to be greater than that for her to get anything.

Now if her pension is $3,000, the reduction is only $2,000. I took the OP to mean that her pension is closer to $6,000 than to $3,000.
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Re: CSRS and SS, check my logic

Post by trueblueky »

Professor Emeritus wrote:if it is CSRS you should get 55%
You pay about 10% of the CSRS pension to provide 55% of the unreduced pension to your spouse. So the spouse ends up with .55/.90 = 61% of the reduced pension.

You're allowed to do less. Some couples only do enough to ensure FEHB coverage for the spouse.
Topic Author
heerekj1
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Re: CSRS and SS, check my logic

Post by heerekj1 »

As I understood it, since her CSRS is >> than my SS and CSRS is treated like SS (as I think it makes sense) she would get the larger of the two pensions which would be hers. She did not pay into SS during here working days. So I see it as two people contributing to a government sponsored retirement system and the rule is that when one spouse dies, the surviving spouse gets the larger of the pensions. It seems fair to me.
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Re: CSRS and SS, check my logic

Post by sscritic »

heerekj1 wrote:As I understood it, since her CSRS is >> than my SS and CSRS is treated like SS (as I think it makes sense) she would get the larger of the two pensions which would be hers. She did not pay into SS during here working days. So I see it as two people contributing to a government sponsored retirement system and the rule is that when one spouse dies, the surviving spouse gets the larger of the pensions. It seems fair to me.
This is not correct. That's not the rule.

Example: Her pension is $4,000 a month. Your social security is $2800 a month. You die. She is FRA.

She gets 2800 - (2/3) 4000 = $133.33 from social security plus her $4000. $4333.33 is greater than either 2800 or 4000. That's the rule, i.e., no complete double dip, but maybe just a big toe dip.

Now if your SS is the same 2800 but her pension is $4500, she will get nothing as (2/3) 4500 = 3000 is more than 2800. So you are correct if >> is really >>.
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heerekj1
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Re: CSRS and SS, check my logic

Post by heerekj1 »

Thanks so much for the help. It looks like if I retire at 66 or 70 and happen to die the first year then the SS benefit would be zero in both cases. So I guess I am back to the situation of a single person. If I take the SS at 66, I will need to take less out of my IRA between 66 and 70. At 70, the RMD will be about $40K/yr above my expenses and will only get better or worse, depending on your perspective.

Again, thanks for the help. And yes, we did not convert to FERS when we were able to. It turned out to be a good decision. At the time, it seemed like it might be too conservative, but having two steady income streams will be very comforting.
minskbelarus47
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Re: CSRS and SS, check my logic

Post by minskbelarus47 »

Actually, the best deal is CSRS, but for some who were in the CSRS, had a break in service, then came back into the govt (around 1983-1984) there is a thing called CSRS Offset, which was an interim and separate retirement plan where one pays into SS, pays into their own retirement fund, can contribute to TSP but with no matching. When one retires, your retirement is calculated as CSRS (pretty much 2% a year minus a bit), AND one will draw SS. However, both will be reduced but will never be less (and most likely more) than the calculation for CSRS retirement. Since my wife retired at 62, she started drawing SS at this time. We figured that she doesn't start losing money until almost age 78, and since we save her SS anyway, I think those lines never cross where (in theory) we/she loses money.

I assume you have the survivor benefit plan with her (up to 55%), and don't forget that your govt pension and SS are COLA based and you will have COLA increases in the years that you take your SS and pension. i believe 2% is projected for this coming year, where most govt employees will get between zero and one %.

My view is: assuming you can afford it, retire as soon as you can, and enjoy it. Golf, fishing, cooking classes, volunteer, enrich yourself, give back, and travel. The end will come soon enough, and it sounds like you have planned for it.

Life (and retirement) is good.

MB
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Re: CSRS and SS, check my logic

Post by JW-Retired »

heerekj1 wrote: If I take the SS at 66, I will need to take less out of my IRA between 66 and 70. At 70, the RMD will be about $40K/yr above my expenses and will only get better or worse, depending on your perspective.
Starting SS at 66 so as to take less out of your IRA between 66 and 70 might be a very bad thing. Depending on your actual income streams, delaying SS and taking more out of your IRA so as to reduce RMDs could give you a bigger after-tax income at age 70. At some income levels effective marginal tax rates on RMDs are several times higher than on SS income. The chart below is for a single filer so you can't use it directly.

It's pretty useless to discuss this in generalities. If you would share your pension amounts and SS PIA with us we could check your "math". You might not be accounting for SS taxation correctly.
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heerekj1
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Re: CSRS and SS, check my logic

Post by heerekj1 »

I guess I did not understand that RMD and SS are treated differently for tax purposes.

I have paid the full amount of SS for most of my working days (only working part time now).

At 70, taking SS at 70:
SS: $45K
CSRS: $77K
RMD: would be about $113K based on a value of $3.1M in the IRA

If I start taking SS at 66 it would be $31K.

Current balance in IRA is $2.5M.

In Michigan, at our ages, the first $45K of CSRS is not subject to state income taxes.

Is that enough Info?
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Re: CSRS and SS, check my logic

Post by Epsilon Delta »

A minor point but it's not just RMDs that interact with SS taxation. It applies to a lot of types of income, even muni-bond income. It can also influence when you tax capital gains. In the context of IRAs it applies to all taxable withdrawals including Roth conversions.
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Re: CSRS and SS, check my logic

Post by sscritic »

heerekj1 wrote: At 70, taking SS at 70:
SS: $45K

If I start taking SS at 66 it would be $31K.
With FRA of 66, age 70 is 1.32 times age 66. If you are looking at a statement, age "70" assumes you keep working at your "current" income level (which was probably 2012 on the statement). Since 45/31 is 1.45, at least one of your numbers is not correct.
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Re: CSRS and SS, check my logic

Post by spectec »

Seems to me that the question should be whether you expect to earn 8% or better on your investments, because the general assumption is that delaying SS benefits between 66 and 70 is roughly equivalent to earning 8% on your deferred SS during those 4 years. I lean in the direction of delaying, because the risk of outliving your savings is more devastating than the risk of leaving some SS dollars on the table if you die before reaching the break-even point.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers
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Re: CSRS and SS, check my logic

Post by JW-Retired »

I deleted my post after botching the math twice. :oops:
Will give it a rest for now.
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Re: CSRS and SS, check my logic

Post by westie »

CSRS retiree at 55, I pinch myself the first of every month .....if I pass first, my wife gets 55% of my pension and continues to draw her SS. If she passes first, I continue to get my CSRS pension, but none of her SS. Seems fair to me.
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Re: CSRS and SS, check my logic

Post by JW-Retired »

OK, trying it one more time....JW
heerekj1 wrote:I guess I did not understand that RMD and SS are treated differently for tax purposes.
At 70, taking SS at 70:
SS: $45K $41k would fit with PIA = $31k
CSRS: $77K
RMD: would be about $113K based on a value of $3.1M in the IRA
If I start taking SS at 66 it would be $31K.
Current balance in IRA is $2.5M.
To compare what your taxable income might be at age 70 with/without delaying SS until then, I'm going to
roughly guess your age 70 IRA balance would be your stated $3.1M if you delayed SS and $3.1M+(4x
$31k +10x0.05x31k) = $3.2395M if you take SS at 66. That makes the age 70 RMDs either your stated $113k
delaying SS or $118.1k taking SS at 66. This assumes if you delay SS you replace the 4 years of SS
income with $31k IRA withdrawals and you also miss out on a total of 4+3+2+1=10 yrs of (guessed) 5%
growth on the $31k yearly withdrawal amount.

Since either way you are going to have a large gross income (e.g. RMD($113k or $118.1k) + CSRS($77k) +
SS($41k or $31k) = $231k or $226.1k) you will definitely be well past the SS taxation phase-in income
range so 85% of your SS is going to be taxed and no more. SS income will still have a 15% lower tax but
not the huge advantage you would have if your gross income was more like $100k.

If we just run the above numbers through TaxCaster for MFJ it gives:
Case 1 (Age 70/delay SS): RMD= $113k, CSRS= $77k, SS=$41k, gross income = $231k: ==> taxable income =
$202.45k, tax = $44.152k, after tax income = $186.8k

Case 2 (Age 70/SS at 66): RMD= $118.1k, CSRS= $77k, SS=$31k, gross income = $226.1k: ==> taxable income =
$199.05k, tax = $43.20k, after tax income = $182.9k

If the math is right the age 70 after-tax income is $3900 better if you delay SS. The SS cola would tend
to add to this advantage, as would including state taxes in most cases.

Finally, you definitely need to check for errors in this. It’s my 3rd attempt at it. :annoyed
JW
https://turbotax.intuit.com/tax-tools/c ... taxcaster/
*edited to correct previous errors.
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Re: CSRS and SS, check my logic

Post by grabiner »

JW Nearly Retired wrote:
heerekj1 wrote: Because of the size of her pension, she will not be eligible to take my SS pension when I die. I had always planned on waiting until 70 to take SS but when I did the math, it would take until I am into my 80's before the taking at 70 was advantageous for me. Since she won't get it anyway there is no sense building it up for her.

I am thinking that I should take it at my normal retirement age (66). Is my logic flawed?
Maybe it is flawed if you did not account for the different taxation of SS income versus pension/RMD income. This varies depending on the amount of your SS versus non-SS income streams. In some middle income ranges an extra $10k of RMD income might be taxed at 5X the rate of a like increment of SS income. Once you get to the point where 85% of your SS is taxed this effect goes away.
If your wife is receiving a large, mostly-taxable CSRS pension, it is likely that 85% of your Social Security will be taxed in any case.
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Re: CSRS and SS, check my logic

Post by JW-Retired »

grabiner wrote:
JW Nearly Retired wrote:
heerekj1 wrote: Because of the size of her pension, she will not be eligible to take my SS pension when I die. I had always planned on waiting until 70 to take SS but when I did the math, it would take until I am into my 80's before the taking at 70 was advantageous for me. Since she won't get it anyway there is no sense building it up for her.

I am thinking that I should take it at my normal retirement age (66). Is my logic flawed?
Maybe it is flawed if you did not account for the different taxation of SS income versus pension/RMD income. This varies depending on the amount of your SS versus non-SS income streams. In some middle income ranges an extra $10k of RMD income might be taxed at 5X the rate of a like increment of SS income. Once you get to the point where 85% of your SS is taxed this effect goes away.
If your wife is receiving a large, mostly-taxable CSRS pension, it is likely that 85% of your Social Security will be taxed in any case.
As OP said later, she is getting a large ($77k) CSRS pension so 85% of SS is taxed. Even so there seems to be a small advantage to delaying SS.
JW
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