401-K versus Social Security

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
deacon76
Posts: 5
Joined: Mon Sep 16, 2019 11:01 am

401-K versus Social Security

Post by deacon76 » Mon Sep 16, 2019 11:12 am

I am 65 years old and planning to retire sometime in the next year probably at age 66. My full retirement Social Security age is 66.

I am trying to determine if it would be best to take my Social Security at age 66 or 70. I know that the Social Security benefit presently goes up 8% every year between age 66 and 70.

However I would have to tap into my 401-K balance for income if I do not take Social Security to make up for my lost employment income when I retire. If I went ahead and take Social Security, the use of the 401-K balance would be minimal.

Any thoughtful advice would be greatly appreciated. Thanks!

delamer
Posts: 9307
Joined: Tue Feb 08, 2011 6:13 pm

Re: 401-K versus Social Security

Post by delamer » Mon Sep 16, 2019 11:53 am

The consensus on this forum is that is usually best to delay Social Security to age 70 and spend down savings prior to taking SS as needed. This is because SS provides inflation adjusted guaranteed income for life.

But without knowing your specific situation, the general rule may not be the best advice.

Some things to consider:

Are you married?
How is your health?
Is providing an inheritance for family/friends/charity an important goal?
What are your expected expenses?
What is your expected SS benefit?
How much do you have saved?
Will you have any other sources of income in retirement?

Admiral
Posts: 2470
Joined: Mon Oct 27, 2014 12:35 pm

Re: 401-K versus Social Security

Post by Admiral » Mon Sep 16, 2019 12:16 pm

Welcome to the Forum!

Def need more info, at minimum: expenses, portfolio size, expected withdrawal rate pre- and post-SS, and SS payout at 66 and then projected increases to 70.

Note that you can claim at anytime between 66 and 70, it's not either-or. You've already reached (or are about to reach) full retirement age, so that's good (you're not considering taking at 62).

HomeStretch
Posts: 2908
Joined: Thu Dec 27, 2018 3:06 pm

Re: 401-K versus Social Security

Post by HomeStretch » Mon Sep 16, 2019 12:30 pm

+1 on needing more information.

You have to look at your SS claiming strategy in conjunction with your income and taxes over your retirement period.

Claiming later rather than earlier generally makes sense if you estimate average or better life expectancy as SS income is (usually) annually increased for inflation. Especially if you don’t have a pension subject to COLA.

Between retirement at age 66 and required minimum distributions (RMD) at age 70-1/2 may be a time of low taxable income which in turn may be a good time to do Roth conversions and/or to draw income from tax deferred accounts like your 401k in order smooth out income after retirement for tax purposes.

Here’s a rough test... If you elected to take SS at age 70, lived off your 401k (assuming no other accounts) from retirement at 66 until SS, and then only needed 4% or less from your 401k each year after turning 70 for living expenses, then you will be fine even though you started drawing on your 401k at age 66.

Topic Author
deacon76
Posts: 5
Joined: Mon Sep 16, 2019 11:01 am

Re: 401-K versus Social Security

Post by deacon76 » Mon Sep 16, 2019 3:23 pm

Thanks for your responses! I am in excellent health I think for 65. I have no other retirement income except for 401-K and future Social Security. My 401-K has done well the last 7-8 years and now is close to $1 million. I do have a house mortgage of $270,000 (house is worth $400,000 and mortgage rate of 4.25%). No other debts.

I am married. My wife is 63.5 and retired at 62 with a retirement pension which she can live on without Social Security at this time. She is in good health-not quite as good as me I think.

Please share any other thoughts.

22twain
Posts: 2112
Joined: Thu May 10, 2012 5:42 pm

Re: 401-K versus Social Security

Post by 22twain » Mon Sep 16, 2019 4:43 pm

deacon76 wrote:
Mon Sep 16, 2019 3:23 pm
My 401-K has done well the last 7-8 years and now is close to $1 million.
About how much will you have to withdraw per year from the 401(k) before age 70, if you delay SS until then?
My investing princiPLEs do not include absolutely preserving princiPAL.

cherijoh
Posts: 6357
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: 401-K versus Social Security

Post by cherijoh » Mon Sep 16, 2019 4:54 pm

deacon76 wrote:
Mon Sep 16, 2019 3:23 pm
Thanks for your responses! I am in excellent health I think for 65. I have no other retirement income except for 401-K and future Social Security. My 401-K has done well the last 7-8 years and now is close to $1 million. I do have a house mortgage of $270,000 (house is worth $400,000 and mortgage rate of 4.25%). No other debts.

I am married. My wife is 63.5 and retired at 62 with a retirement pension which she can live on without Social Security at this time. She is in good health-not quite as good as me I think.

Please share any other thoughts.
When will your mortgage be paid off?

HomeStretch
Posts: 2908
Joined: Thu Dec 27, 2018 3:06 pm

Re: 401-K versus Social Security

Post by HomeStretch » Mon Sep 16, 2019 5:53 pm

With the additional information that you are married, the claiming strategy often recommended is Spouse 1 with the higher SS benefit delay claiming until age 70 and Spouse 2 take SS at an earlier age. Part of the reasoning is that Spouse 2 will receive Spouse 1’s higher SS as a widow(er)’s benefit.

You might try a site like opensocialsecurity.com for a SS claiming strategy recommendation.

delamer
Posts: 9307
Joined: Tue Feb 08, 2011 6:13 pm

Re: 401-K versus Social Security

Post by delamer » Mon Sep 16, 2019 5:54 pm

deacon76 wrote:
Mon Sep 16, 2019 3:23 pm
Thanks for your responses! I am in excellent health I think for 65. I have no other retirement income except for 401-K and future Social Security. My 401-K has done well the last 7-8 years and now is close to $1 million. I do have a house mortgage of $270,000 (house is worth $400,000 and mortgage rate of 4.25%). No other debts.

I am married. My wife is 63.5 and retired at 62 with a retirement pension which she can live on without Social Security at this time. She is in good health-not quite as good as me I think.

Please share any other thoughts.
It is interesting that you seem to approach retirement as you have your sources of income and your wife has her own separate sources.

To each couple their own, but you’ll probably get the most bang for your collective buck if you make decisions together about when to file for SS, how to invest, and how to spend down your joint investments.

User avatar
Summit111
Posts: 307
Joined: Sun Mar 17, 2013 6:32 pm

Re: 401-K versus Social Security

Post by Summit111 » Mon Sep 16, 2019 6:12 pm

I rolled my 401-K into a Traditional IRA after retirement at age 62 and have been taking distributions from it since then. This was a strategic move in order to spend down my IRA to reduce my RMDs at age 70.5. I have also done some Roth conversions.

Planning to take SS at age 70.

Summit
“Got my mind on my money, and my money on my mind!” Snoop Dog

User avatar
JoeRetire
Posts: 3878
Joined: Tue Jan 16, 2018 2:44 pm

Re: 401-K versus Social Security

Post by JoeRetire » Mon Sep 16, 2019 6:21 pm

deacon76 wrote:
Mon Sep 16, 2019 11:12 am
However I would have to tap into my 401-K balance for income if I do not take Social Security to make up for my lost employment income when I retire. If I went ahead and take Social Security, the use of the 401-K balance would be minimal.

Any thoughtful advice would be greatly appreciated. Thanks!
Put your numbers in https://opensocialsecurity.com/ Make sure to play around with the Advanced Options and set different Assumed Age at Death values to see what longevity will do.

You'll be able to determine an optimal claiming strategy. If nothing else it will give you an idea what you would give up if you choose not to delay to 70.

IMHO, it's usually a good thing to maximize an inflation-protected, guaranteed income stream, particularly if you are married and were the higher earner.
Don't be a lemming.

User avatar
Wiggums
Posts: 1928
Joined: Thu Jan 31, 2019 8:02 am

Re: 401-K versus Social Security

Post by Wiggums » Mon Sep 16, 2019 6:35 pm

HomeStretch wrote:
Mon Sep 16, 2019 5:53 pm
With the additional information that you are married, the claiming strategy often recommended is Spouse 1 with the higher SS benefit delay claiming until age 70 and Spouse 2 take SS at an earlier age. Part of the reasoning is that Spouse 2 will receive Spouse 1’s higher SS as a widow(er)’s benefit.

You might try a site like opensocialsecurity.com for a SS claiming strategy recommendation.
+1. This is what our family is doing.

TBillT
Posts: 798
Joined: Sat Sep 17, 2011 1:43 pm

Re: 401-K versus Social Security

Post by TBillT » Mon Sep 16, 2019 7:59 pm

We went by OpenSocialSecurity.com as suggested....I am deferring but little older than you so I can get spousal in the meantime.

User avatar
Eagle33
Posts: 256
Joined: Wed Aug 30, 2017 3:20 pm

Re: 401-K versus Social Security

Post by Eagle33 » Tue Sep 17, 2019 2:24 am

Does wife pay currently for her own medical insurance since she is below Medicare age?
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

Topic Author
deacon76
Posts: 5
Joined: Mon Sep 16, 2019 11:01 am

Re: 401-K versus Social Security

Post by deacon76 » Tue Sep 17, 2019 10:36 am

My wife was a teacher/state employee and her medical insurance is still paid by the state for the most part. There is a small monthly premium.

Topic Author
deacon76
Posts: 5
Joined: Mon Sep 16, 2019 11:01 am

Re: 401-K versus Social Security

Post by deacon76 » Tue Sep 17, 2019 10:39 am

My mortgage will not be paid off for 15 years. My wife and I are planning our finances together. We have been married for 41 years.

Admiral
Posts: 2470
Joined: Mon Oct 27, 2014 12:35 pm

Re: 401-K versus Social Security

Post by Admiral » Tue Sep 17, 2019 10:45 am

deacon76 wrote:
Tue Sep 17, 2019 10:36 am
My wife was a teacher/state employee and her medical insurance is still paid by the state for the most part. There is a small monthly premium.
You still have not posted your expenses; that makes good advice only general.

But with a little sleuthing, I see that you note
If I went ahead and take Social Security, the use of the 401-K balance would be minimal.
That tells me that you may have max or near max SS (call it 36k per year) at FRA and that a "minimal" draw on your $1m portfolio might be 2%, or $20k. So your expenses would be covered by $36k+$20k = $56k before taxes.

$56k (call it 60k before taxes) would be a 6% draw on a $1m portfolio for 4 years, then falling at age 70 to less than 4%.

Is any of this accurate?

I would have no problem with that scenario since your SS would grow by 32%, plus COLA, over that period.

wolf359
Posts: 1859
Joined: Sun Mar 15, 2015 8:47 am

Re: 401-K versus Social Security

Post by wolf359 » Tue Sep 17, 2019 11:57 am

Don't forget that you're going to be withdrawing from your 401-k at 70 1/2 whether you want to or not, through Required Minimum Distributions (RMDs). If you don't need the RMDs to live on, plan to invest them. You can use them for big purchases that will come up from time to time (like replacing the roof, buying major appliances, out of pocket health expenses, or getting a new car.)

If you don't have much money in taxable or Roth accounts, then you don't have any money for those unexpected life events. If you get that money from your retirement accounts, your taxable income goes up. If your taxable income goes up high enough, your Social Security income gets taxed, and your Medicare premiums go up. It's a good idea to have some money available in accounts that have already been taxed.

That's where the suggestion about conducting Roth conversions came from. You may want to defer claiming Social Security for 4 years, live off of money from the 401-k during that time, and use some of your income bracket space to convert additional withdrawals to Roth accounts. This gives you "income tax diversification," so you have options if you need bigger chunks of money while retired.

If you already have large taxable accounts or a sufficiently sized emergency fund, this may not be necessary. However, you haven't mentioned them.

User avatar
Watty
Posts: 17611
Joined: Wed Oct 10, 2007 3:55 pm

Re: 401-K versus Social Security

Post by Watty » Tue Sep 17, 2019 12:11 pm

A lot really depends on your details but one thing to remember when you are crunching your numbers is that eventually one of you will likely survive the other and then be filing tax returns in the higher single tax brackets. If there are no future tax law changes then the federal income tax brackets will also go back up in 2026 since the tax cuts were only temporarily.

For many people this means that it makes a lot of sense live on their IRA/401k first and to do Roth conversions in a low tax bracket before they start Social Security or a pension.

The way Social Security is taxed is complicated and can result in you being in a higher than expected tax bracket so be sure to understand how that will work in your situation.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

It would not be taking future tax law changes into account but it would be good to do dummy tax returns for various scenarios for when you are older and might be widowed.

One complication is that your wife's pension and your Social Security could be less for a survivor since some state pensions are instead of Social Security so be sure to understand how that works.

Jimmie
Posts: 394
Joined: Tue Mar 07, 2017 7:05 pm

Re: 401-K versus Social Security

Post by Jimmie » Tue Sep 17, 2019 12:56 pm

All good posts with informative strategies from several knowledgeable Bogleheads.

I have visited the Open Social Security website several times and looked at various scenarios. Since I am single and so is my GF (for many reasons), the SS filing scenarios are much simpler.

The problem is that no Boglehead that I can find has made any posthumous post stating whether their ultimate SS filing date decision was worth it or not.

Seriously, I am in better than average health and relatives have shown above average longevity on both sides of my parents' family. Although I could get run over by a truck today, my excepted use of the calculator is with the "2017 CSO Non-smoker Preferred" mortality table option. I estimate living to my late 80's, so that gives me "best guess" numbers. (The "2017 CSO Non-smoker Super-preferred" table is too optimistic for me because I do have a couple of minor health issues.)

I figure living to 88 only so I have a number to use in a lot of these calculators. Living longer would be a bonus. If I do decide to live less, that's a decision I'll have to live with, but I guess I won't lose any sleep over it. Financially, I most likely won't run out of money, even if I live to 100. Just my luck.

delamer
Posts: 9307
Joined: Tue Feb 08, 2011 6:13 pm

Re: 401-K versus Social Security

Post by delamer » Tue Sep 17, 2019 1:01 pm

Jimmie wrote:
Tue Sep 17, 2019 12:56 pm
All good posts with informative strategies from several knowledgeable Bogleheads.

I have visited the Open Social Security website several times and looked at various scenarios. Since I am single and so is my GF (for many reasons), the SS filing scenarios are much simpler.

The problem is that no Boglehead that I can find has made any posthumous post stating whether their ultimate SS filing date decision was worth it or not.

Seriously, I am in better than average health and relatives have shown above average longevity on both sides of my parents' family. Although I could get run over by a truck today, my excepted use of the calculator is with the "2017 CSO Non-smoker Preferred" mortality table option. I estimate living to my late 80's, so that gives me "best guess" numbers. (The "2017 CSO Non-smoker Super-preferred" table is too optimistic for me because I do have a couple of minor health issues.)

I figure living to 88 only so I have a number to use in a lot of these calculators. Living longer would be a bonus. If I do decide to live less, that's a decision I'll have to live with, but I guess I won't lose any sleep over it. Financially, I most likely won't run out of money, even if I live to 100. Just my luck.
You don’t need to find a posthumous post. You could ask if anyone already has lived long enough to reap the benefits of delaying SS. Or lived long enough to determine that they should have delayed but didn’t.

Jimmie
Posts: 394
Joined: Tue Mar 07, 2017 7:05 pm

Re: 401-K versus Social Security

Post by Jimmie » Tue Sep 17, 2019 1:14 pm

delamer wrote:
Tue Sep 17, 2019 1:01 pm
You don’t need to find a posthumous post. You could ask if anyone already has lived long enough to reap the benefits of delaying SS. Or lived long enough to determine that they should have delayed but didn’t.
My post was mostly tongue-in-check. I would think most people do the research, make a decision based on that research, and live their life under those constraints.

I know a lot of 2-pack-a-day, overweight, construction workers that file for SS benefits at 62 without hesitation. I have never heard any regret from them about their decision. Most of them think they may not make it until tomorrow and sadly, some don't. Filing at 70 does not even cross their mind.

Big Dog
Posts: 1546
Joined: Mon Sep 07, 2015 4:12 pm

Re: 401-K versus Social Security

Post by Big Dog » Tue Sep 17, 2019 1:28 pm

as an aside, Id consider a no-cost refi of that mortgage -- perhaps 15 years -- to see if you can get it down to 3%.

Admiral
Posts: 2470
Joined: Mon Oct 27, 2014 12:35 pm

Re: 401-K versus Social Security

Post by Admiral » Wed Sep 18, 2019 7:00 am

For a married couple, claiming at 70, IMO, is more about the surviving spouse than about breaking even on the delay (and if you don't, you'll be dead). It's kind of a no brainer if one can afford it, which--with $1m--the OP sounds like he can.

JW-Retired
Posts: 7145
Joined: Sun Dec 16, 2007 12:25 pm

Re: 401-K versus Social Security

Post by JW-Retired » Wed Sep 18, 2019 9:56 am

deacon76 wrote:
Mon Sep 16, 2019 11:12 am
I am 65 years old and planning to retire sometime in the next year probably at age 66. My full retirement Social Security age is 66.

I am trying to determine if it would be best to take my Social Security at age 66 or 70. I know that the Social Security benefit presently goes up 8% every year between age 66 and 70.
What will be your federal + state tax bracket situation when you are 70+? For many taxpayers (like me), that can make it a real no-brainer to delay SS just as long as possible. Depending on your income, 15% to 100% of SS is not IRS taxed. The percentage is dependent on how much other income you have. Plus most all states don't income tax SS at all while they do generally tax most everything else like IRA withdrawals.

My own income tax rate on the RMDs and pension is 1.5x that on SS. Once I realized that, I felt really wise to have deferred SS to 70! :D
JW
Retired at Last

Topic Author
deacon76
Posts: 5
Joined: Mon Sep 16, 2019 11:01 am

Re: 401-K versus Social Security

Post by deacon76 » Wed Sep 18, 2019 12:40 pm

I want to thank all the wonderful Bogleheads who responded to my questions. All the responses were thoughtful and I am studying them closely. I have benefited from your advice already.

User avatar
JoeRetire
Posts: 3878
Joined: Tue Jan 16, 2018 2:44 pm

Re: 401-K versus Social Security

Post by JoeRetire » Wed Sep 18, 2019 2:05 pm

Jimmie wrote:
Tue Sep 17, 2019 12:56 pm
The problem is that no Boglehead that I can find has made any posthumous post stating whether their ultimate SS filing date decision was worth it or not.
While they are all living, most folks report that they are happy with their claiming strategy choice - without regard to the actual choice they made. They are happy if they filed early. They are happy if they delayed. And they are happy with whatever they chose in between.

We haven't heard from many widows/widowers to hear if they are pleased with their survivor's benefits.
Seriously, I am in better than average health and relatives have shown above average longevity on both sides of my parents' family. Although I could get run over by a truck today, my excepted use of the calculator is with the "2017 CSO Non-smoker Preferred" mortality table option. I estimate living to my late 80's, so that gives me "best guess" numbers. (The "2017 CSO Non-smoker Super-preferred" table is too optimistic for me because I do have a couple of minor health issues.)
You should consider playing with the "Assumed age at death" selection and put a late 80's number in for the age.
Don't be a lemming.

Post Reply