Bogleheads.org

Posted: **Wed May 24, 2017 11:17 am**

David Jay wrote:
marcopolo wrote:Not sure why you would ignore [inflation] in setting up the scenarios, but then consider inflation in the context of evaluating the scenarios.
^^^ This!

Indeed, very puzzling.

Posted: **Wed May 24, 2017 11:25 am**

House Blend in [url=https://www.bogleheads.org/forum/viewtopic.php?p=3379798#p3379798]this post[/url] wrote:... I would quantify how much better (or worse) delayed SS is compared to immediate SS in the tax-deferred scenario. Next do the same calculation in the Roth scenario.

I'm perplexed, House Blend. In my previous post I already did that. Either you didn't realize it, or I'm misunderstanding your question. [*][/color]

Here is the table from that post again. To hopefully make it clearer, I've expanded the headings to indicate that "Pre Tax" also refers to the Roth withdrawal case (since we're assuming there is no tax in that case) and "After Tax" refers to the Traditional IRA withdrawal case with taxes considered. I've also added columns showing the cumulative cash flows and the difference in Internal Rates of Return (IRR).

Code: Select all

     ------ Pre Tax & Roth ------    ------ TIRA After Tax ------
Age  Cash Flow  Cumulative    IRR    Cash Flow  Cumulative    IRR     Diff

Code: Select all

 62   (20,000)    (20,000)            (21,907)    (21,907)
 63   (20,000)    (40,000)            (21,907)    (43,814)
 64   (20,000)    (60,000)            (21,907)    (65,721)
 65   (20,000)    (80,000)            (21,907)    (87,628)
 66   (20,000)   (100,000)            (21,907)   (109,535)
 67   (20,000)   (120,000)            (21,907)   (131,442)
 68   (20,000)   (140,000)            (21,907)   (153,349)
 69   (20,000)   (160,000)            (21,907)   (175,256)
 70    15,200    (144,800)             19,524    (155,732)
 71    15,200    (129,600)             19,524    (136,208)
 72    15,200    (114,400)             19,524    (116,684)
 73    15,200     (99,200)             19,524     (97,160)
 74    15,200     (84,000)             19,524     (77,636)
 75    15,200     (68,800)             19,524     (58,112)
 76    15,200     (53,600)             19,524     (38,588)
 77    15,200     (38,400)             19,524     (19,064)
 78    15,200     (23,200)  (1.8%)     19,524         460    0.0%     1.9%
 79    15,200      (8,000)  (0.6%)     19,524      19,984    1.2%     1.8%
 80    15,200       7,200    0.5%      19,524      39,508    2.2%     1.7%
 81    15,200      22,400    1.3%      19,524      59,032    3.0%     1.7%
 82    15,200      37,600    2.0%      19,524      78,556    3.6%     1.6%
 83    15,200      52,800    2.7%      19,524      98,080    4.2%     1.5%
 84    15,200      68,000    3.2%      19,524     117,604    4.7%     1.5%
 85    15,200      83,200    3.6%      19,524     137,128    5.1%     1.5%
 86    15,200      98,400    4.0%      19,524     156,652    5.5%     1.4%
 87    15,200     113,600    4.4%      19,524     176,176    5.8%     1.4%
 88    15,200     128,800    4.7%      19,524     195,700    6.0%     1.4%
 89    15,200     144,000    4.9%      19,524     215,224    6.3%     1.3%
 90    15,200     159,200    5.2%      19,524     234,748    6.5%     1.3%
 91    15,201     174,401    5.4%      19,524     254,272    6.7%     1.3%
 92    15,202     189,603    5.6%      19,524     273,796    6.8%     1.3%
 93    15,203     204,806    5.7%      19,524     293,320    7.0%     1.3%
 94    15,204     220,010    5.9%      19,524     312,844    7.1%     1.2%
 95    15,205     235,215    6.0%      19,524     332,368    7.2%     1.2%
 96    15,206     250,421    6.1%      19,524     351,892    7.3%     1.2%
 97    15,207     265,628    6.2%      19,524     371,416    7.4%     1.2%
 98    15,208     280,836    6.3%      19,524     390,940    7.5%     1.2%
 99    15,209     296,045    6.4%      19,524     410,464    7.6%     1.2%
100    15,210     311,255    6.5%      19,524     429,988    7.6%     1.2%

Let me explain the columns. (Refer to my previous post for more information.)

Pre Tax & Roth
- Cash Flow: The difference in SS benefit between starting at age 62 and at age 70. For the first eight years it represents the SS benefit that one is forsaking if one waits until age 70. For subsequent years it is the additional benefit one receives by waiting until 70.
- Cumulative: The running total of the differences.
- IRR: The Internal Rate of Return calculated with the Excel IRR function applied to the range of cells from age 62 through each possible life expectancy age in succession beginning with 78. For example, if one died just before turning age 82, the IRR would be 1.3%. Note: since SS is inflation-indexed, these are real returns comparable to the yield on TIPS.
TIRA After Tax
- Cash Flow: The difference in SS benefit and federal tax between starting at age 62 and at age 70. For example if one claims at age 62, one would get $20,000 and pay $5,095 tax. On the other hand if one delayed, from age 62 - 69 one would forsake the $20,000 and also pay $7,072 in tax (higher because of funding the SS absence with TIRA withdrawals). Therefore the Cash Flow for these years is -$21,907 (0 - 7002 - 20000 + 5095). If one delays, starting at age 70 one gets $35,200 in SS and pays $771 in tax. The Cash Flow for these years is therefore +$19,524 (35200 - 771 - 20000 + 5095).
- Cumulative: The running total of the difference, just as for Pre Tax (Roth).
- IRR: The Internal Rate of Return calculated same way as in the Pre Tax case. For example, if one died just before turning age 82, the IRR would be 3.0%.
Diff: The IRR for the TIRA After Tax case less the IRR for the Pre Tax & Roth case. For example, if one died just before turning age 82, it would be 1.7% (3.0% - 1.3%).

House Blend in same post wrote:Having done that, my question is whether the advantage of delaying in the Roth scenario looks better or worse than it does in the tax-deferred scenario.

Since the Pre Tax & Roth case's IRR is smaller for every life expectancy beginning with age 78, I'd say delaying is not as advantageous as in the TIRA After Tax case. (It would only be "better" -- i.e., not as bad -- if one died before age 73 or so.)

Edited to add following footnote:
* I'd been expecting you to comment, House Blend, on the astounding result (at least it astounded me!) that when funding a $50,000 after tax income with the $20,000 of SS, the federal tax is $5,095; but when funding it with $35,200 of SS, the tax is only $771. In other words, postponing the start of SS reduces one's federal tax over $4,000 every year beginning at age 70. I thought you might ask about the effect on my analysis of the underlined part of the following:

the Wiki in [url=https://www.bogleheads.org/wiki/Taxation_of_Social_Security_benefits]Taxation of Social Security benefits[/url] wrote:There are two relevant base amounts; unlike most income limits in the tax code, they are not adjusted for inflation. The lower base is $25,000 if you are single, $32,000 if married filing jointly. The upper base is $34,000 if you are single, $44,000 if married filing jointly.

Posted: **Wed May 24, 2017 1:53 pm**

CnC wrote: He is looking forward to taking Social Security at 62. I personally think it is a good idea

Here is why I - and 2% of retirees - delay until age 70. NOTE: I turn 70 later this year. Like your Dad, I am single. I have had good health and have had other funds to live on. Note one SS strategy for a couple is to begin the SS of the lower SS spouse at age 62, and let the higher amount SS grow until age 70 then switch over to that one.

I say to forget the math and emotions, fear SS will change, at least for those over 55. I view SS as insurance - in case I live.

You would gain about 33% if you wait until 66, and another 33% if you wait until 70. If I had begun at age 62 I probably would have no idea where the money went, many need that money to spend on living costs or buy a new car or use it for extras like travel. So instead of spending the money from age 62, I start at 70 with $40,000 a year for the rest of my life. If inflation happens, it is better at increasing $40,000 than the $22,000 I'd have if I began at 62. I also wanted to max the SS amount as it will help pay for any long term care. You'll get into a nicer facility with $40,000 than $22,000. And that breakeven point is pretty close, about a decade away.

Posted: **Wed May 24, 2017 5:49 pm**

my name wrote:
CnC wrote: Note one SS strategy for a couple is to begin the SS of the lower SS spouse at age 62, and let the higher amount SS grow until age 70 *then switch over to that one*.

I am unsure what you mean by then switch over to that one.

Isn't once you start to collect you are set from then onwards?

---—

I do have a question regarding married with both being high earners (near max SS)

My wife is 1967 and I'm 1965 and so if both our SS would be near max and we don't need any because we saved but would like to get what's ours.

So if we were to split the difference would it make sense (assuming we both retire at 61) for myself to collect early at 62 and wife to wait for 70 or the other way around? (Wife at 62 and myself at 70). I'm not clear of the math if it makes more sense for me to collect early since I'm getting to 62 first but we have to wait a full 9-10 years for my wife to reach 70, or if it's better to wait for my wife to reach 62 and not have as many years until I reach 70 when we'd be collecting two checks.

I know maybe I'm over thinking and maybe it's better for both of us to collect at FRA or some time before or after. But I like the idea of getting something sooner. I know it's the instant gratification thing that makes a lot of people file earlier.

Posted: **Wed May 24, 2017 9:10 pm**

Not sure now after listing to everyone. I have enough to live to 100 without SS. I still live like I have little money. Sense I turned 62 I take what I would get from SS and use it. I will do the same with my wife when she retires. We will wait until 70 and get 44,000 a year. we live now on 60000. We have saved 2.2m. So we could take out more. I'm also putting some into Roth. My plan is to have enough to have 1000 a month tax free
for 15 years. I'm at 6years now. I would like a better computer with spell check.

Posted: **Thu May 25, 2017 6:22 am**

Regarding taking SS at age 62 or delaying until age 70.
I think I may pick door #3.
Delay SS until FRA (Full Retirement Age) at age 66 and enjoy the extra $700/month.

edit:
And who knows, maybe I want to do part time work before FRA at age 66.
I most certainly would want to avoid the steep penalty for working while drawing early SS before FRA.

burt

Posted: **Thu May 25, 2017 8:31 am**

rai wrote:
my name wrote:
CnC wrote: Note one SS strategy for a couple is to begin the SS of the lower SS spouse at age 62, and let the higher amount SS grow until age 70 *then switch over to that one*.
I am unsure what you mean by then switch over to that one.

Isn't once you start to collect you are set from then onwards?

---—

I do have a question regarding married with both being high earners (near max SS)

My wife is 1967 and I'm 1965 and so if both our SS would be near max and we don't need any because we saved but would like to get what's ours.

So if we were to split the difference would it make sense (assuming we both retire at 61) for myself to collect early at 62 and wife to wait for 70 or the other way around? (Wife at 62 and myself at 70). I'm not clear of the math if it makes more sense for me to collect early since I'm getting to 62 first but we have to wait a full 9-10 years for my wife to reach 70, or if it's better to wait for my wife to reach 62 and not have as many years until I reach 70 when we'd be collecting two checks.

I know maybe I'm over thinking and maybe it's better for both of us to collect at FRA or some time before or after. But I like the idea of getting something sooner. I know it's the instant gratification thing that makes a lot of people file earlier.

Have you tried using one of the better SS calculators? They will take these variable and turn them into numbers that you can compare which will likely make your choices easier I like the Bedrock one here....
http://www.bedrockcapital.com/ssanalyze/

Please note that setting the variables within the calculator will change your results and sometimes in a large way - you can set COLA, Discount rate, and expected age of death as well as when to take each SS for one or both of a couple. Results arte pretty easy to read in the summary and you can easily print each run if you like.

Posted: **Thu May 25, 2017 4:22 pm**

smitcat wrote:
rai wrote:
my name wrote:
CnC wrote: Note one SS strategy for a couple is to begin the SS of the lower SS spouse at age 62, and let the higher amount SS grow until age 70 *then switch over to that one*.
I am unsure what you mean by then switch over to that one.

Isn't once you start to collect you are set from then onwards?

---—

I do have a question regarding married with both being high earners (near max SS)

My wife is 1967 and I'm 1965 and so if both our SS would be near max and we don't need any because we saved but would like to get what's ours.

So if we were to split the difference would it make sense (assuming we both retire at 61) for myself to collect early at 62 and wife to wait for 70 or the other way around? (Wife at 62 and myself at 70). I'm not clear of the math if it makes more sense for me to collect early since I'm getting to 62 first but we have to wait a full 9-10 years for my wife to reach 70, or if it's better to wait for my wife to reach 62 and not have as many years until I reach 70 when we'd be collecting two checks.

I know maybe I'm over thinking and maybe it's better for both of us to collect at FRA or some time before or after. But I like the idea of getting something sooner. I know it's the instant gratification thing that makes a lot of people file earlier.
Have you tried using one of the better SS calculators? They will take these variable and turn them into numbers that you can compare which will likely make your choices easier I like the Bedrock one here....
http://www.bedrockcapital.com/ssanalyze/

Please note that setting the variables within the calculator will change your results and sometimes in a large way - you can set COLA, Discount rate, and expected age of death as well as when to take each SS for one or both of a couple. Results arte pretty easy to read in the summary and you can easily print each run if you like.

Thanks a bunch, didn't know about these calculators.

Posted: **Thu May 25, 2017 9:00 pm**

#Cruncher wrote:
House Blend in [url=https://www.bogleheads.org/forum/viewtopic.php?p=3379798#p3379798]this post[/url] wrote:... I would quantify how much better (or worse) delayed SS is compared to immediate SS in the tax-deferred scenario. Next do the same calculation in the Roth scenario.
I'm perplexed, House Blend. In my previous post I already did that. Either you didn't realize it, or I'm misunderstanding your question. [*][/color]

OK, yes I now understand better what you were calculating.

Of course a big difference between my back of the envelope example and your calculation is that my tradeoff was marginal: a one time hit of $2000 vs. $160/yr. Yours (claiming at 62 or 70) involves large amounts of SS income: $20K per year for 8 years in exchange for an extra $15,200/yr starting 8 years later.

One has to expect that the large income tradeoffs will straddle multiple marginal tax rates (and they do). By keeping things marginal, I was angling for having only one rate applied to both the $2000 and the $160/yr.

Another consequence of having the "purchase" take 8 years is that it is more essential to account for the future value of money. It appears that you are doing the calculation in real dollars, but if your retirement account can be expected to return (say) 3% real per year, then that means that a withdrawal of 2017 dollars in 2018 is 3% cheaper. Equivalently, one should account for how much is left in the retirement account if it is growing 3% real/yr. (Or some other rate.)

Edited to add following footnote:
* I'd been expecting you to comment, House Blend, on the astounding result (at least it astounded me!) that when funding a $50,000 after tax income with the $20,000 of SS, the federal tax is $5,095; but when funding it with $35,200 of SS, the tax is only $771. In other words, postponing the start of SS reduces one's federal tax over $4,000 every year beginning at age 70. I thought you might ask about the effect on my analysis of the underlined part of the following:
the Wiki in [url=https://www.bogleheads.org/wiki/Taxation_of_Social_Security_benefits]Taxation of Social Security benefits[/url] wrote:There are two relevant base amounts; unlike most income limits in the tax code, they are not adjusted for inflation. The lower base is $25,000 if you are single, $32,000 if married filing jointly. The upper base is $34,000 if you are single, $44,000 if married filing jointly.

Yes, I wasn't going to mention that those base amounts are in nominal dollars.

The result is that if you are in or below the SS tax hump, enough inflation can push you all the way through and above the hump. Unfortunately one has to make assumptions about inflation to model this.

For example with 15% inflation, the $20K SS will become $23K nominal, and you need about $41,400 nominal ordinary income ($36K real) to net $50K real after tax. This moves you from being inside the SS tax hump to being above it. Once you stay above the hump, then things become simpler (and different from your calculation), since 85% of the SS income is taxable.

Claiming SS late pushes the tax hump to a higher point, so that less of the SS income is taxable if you are in it. But it's not necessarily a free lunch, since it has to be balanced against paying more income tax in the pre-SS years. Real vs. nominal is an issue here too.

Posted: **Wed Jun 14, 2017 2:25 am**

smitcat wrote:
Diogenes wrote:This never fails to be an interesting topic. Let's try this:

My business partner will retire at age 62, about three years from now. Given his set of circumstances, he feels his spouse, who retired this year at age 59, should claim her SS at 62. We have discussed this a few times as he feels I should know the answer, but it seems hard to fault his logic. Here goes:

He: has a sizable full cola lifetime pension that he is collecting now from prior government service, plus partnership income that will end at retirement. Neither plan to need to touch their tax deferred portfolio until RMD requires it. Although he qualifies for SS due to work before and after that, due to WEP and GPO he plans not to file for SS until FRA. Because of the pension, he will not have low income years to do Roth conversions.
She: has a sizable SS benefit from a long private/ non-government career and tax deferred accounts, but wishes her 'own' money until RMD's at 70 1/2. Both are in good health.
Plan: she will take SS at 62, he will wait until FRA.

He asked me to point out something significant that he is missing. Since there is a nice dinner involved with this wager, I'm turning to my expert colleagues at BH to save me from picking up the check...
Is he overlooking something?
The best method to win the bet is to load his information into any reasonable calculator/simulator and see what amount of funds he will be able to spend each year not the total amount if funds he will collect. Delaying SS will often yield higher returns in funds you can spend dependent upon the input that you provide the calculator - we like both IORP and the RPM but there are others that can do similar tasks.
Without loading the exact account details and variables for your business partner into a calculator there can be no comparisons.

Good ideas. Still, it appears that IORP and RPM don't account for the tax consequences of withdrawing $ now from IRA's for the wife's cash flow needs if SS is deferred to FRA or 70. Also looked at SSAnalyze as recommended, but it also does not appear to take tax rate into account.
With the pension keeping them in the 25-28 percent bracket forever, and the RMDs starting at 70 being around 100K, it seems that there would little reason to defer even more SS income until 70, which would also require pre-RMD withdrawals to cover cash flow. Conversion to existing Roths meanwhile would likewise be out due to the tax rate.
The only advantage I can see for her to not use SS payments at 62 as a substitute for withdrawal from an IRA of the same amount is if she plans to return to work in any meaningful fashion between 62 and 66. Thoughts?

Posted: **Wed Jun 14, 2017 7:39 am**

Diogenes wrote:
smitcat wrote:
Diogenes wrote:This never fails to be an interesting topic. Let's try this:

My business partner will retire at age 62, about three years from now. Given his set of circumstances, he feels his spouse, who retired this year at age 59, should claim her SS at 62. We have discussed this a few times as he feels I should know the answer, but it seems hard to fault his logic. Here goes:

He: has a sizable full cola lifetime pension that he is collecting now from prior government service, plus partnership income that will end at retirement. Neither plan to need to touch their tax deferred portfolio until RMD requires it. Although he qualifies for SS due to work before and after that, due to WEP and GPO he plans not to file for SS until FRA. Because of the pension, he will not have low income years to do Roth conversions.
She: has a sizable SS benefit from a long private/ non-government career and tax deferred accounts, but wishes her 'own' money until RMD's at 70 1/2. Both are in good health.
Plan: she will take SS at 62, he will wait until FRA.

He asked me to point out something significant that he is missing. Since there is a nice dinner involved with this wager, I'm turning to my expert colleagues at BH to save me from picking up the check...
Is he overlooking something?
The best method to win the bet is to load his information into any reasonable calculator/simulator and see what amount of funds he will be able to spend each year not the total amount if funds he will collect. Delaying SS will often yield higher returns in funds you can spend dependent upon the input that you provide the calculator - we like both IORP and the RPM but there are others that can do similar tasks.
Without loading the exact account details and variables for your business partner into a calculator there can be no comparisons.
Good ideas. Still, it appears that IORP and RPM don't account for the tax consequences of withdrawing $ now from IRA's for the wife's cash flow needs if SS is deferred to FRA or 70. Also looked at SSAnalyze as recommended, but it also does not appear to take tax rate into account.
With the pension keeping them in the 25-28 percent bracket forever, and the RMDs starting at 70 being around 100K, it seems that there would little reason to defer even more SS income until 70, which would also require pre-RMD withdrawals to cover cash flow. Conversion to existing Roths meanwhile would likewise be out due to the tax rate.
The only advantage I can see for her to not use SS payments at 62 as a substitute for withdrawal from an IRA of the same amount is if she plans to return to work in any meaningful fashion between 62 and 66. Thoughts?

Diogenes - in this last post you have added more details - estimated tax rates and RMD estimates that will assist in your modeling. I have used both the long form of IOPR as well as RPM and both of them will help determine the tax consequences you are asking about I am more familiar running many scenarios with IORP and simulating proposed annuities and various SS age filings while recording (printing or charting) the resultant taxes each year that IORP produces on one of the output charts. On a couple of the simulations that we were most interested in we then took those tax estimates and ran a few years through our tax software for simulation as well - our results were very close . YMMV

Posted: **Thu Jun 15, 2017 9:06 am**

Smitcat,

You're absolutely right, I was not trying the long form iORP. Took a look and it asks for a great deal more information than I have. Sent it to him to figure out!

Posted: **Thu Jun 15, 2017 9:38 am**

Diogenes wrote:Smitcat,

You're absolutely right, I was not trying the long form iORP. Took a look and it asks for a great deal more information than I have. Sent it to him to figure out!

If you want to look at comparing variables that you introduce also consider using the 'fixed payout plus inflation' option on the IORP as it will remove the variables of payouts per year when comparing things like Roth converts.

Posted: **Thu Jun 15, 2017 11:21 am**

I know a fellow who took social security at 62 and invested it in the total stock market. He lived off his investments, dividends, interests, ect. His reason was that historically the market returned 8%(same as delaying social security) although not guaranteed, but at least if he died before taking social security at 70 he would have some additional money for his heirs. And if it did return 8% he did not lose anything by taking it early.

Posted: **Thu Jun 15, 2017 11:35 am**

highercall wrote:I know a fellow who took social security at 62 and invested it in the total stock market. He lived off his investments, dividends, interests, ect. His reason was that historically the market returned 8%(same as delaying social security) although not guaranteed, but at least if he died before taking social security at 70 he would have some additional money for his heirs. And if it did return 8% he did not lose anything by taking it early.

This worked for us in this bull market of 8 years.

Bogleheads.org

My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not?

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)