Which SS strategy makes more sense?

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Chip Shot
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Which SS strategy makes more sense?

Post by Chip Shot » Fri Nov 15, 2019 9:55 am

I have ran Open Social Security to determine our best strategy for taking SS.
It shows that the optimal strategy for us is to wait until I reach 70 to take my benefits, and that my wife should take hers early at age 62. She is 7 yrs younger than I, so I will be 69 when she starts taking benefits.
This strategy is designed to get us the most possible SS over our lifetime. I understand this strategy, but my question is what affect will it have on my overall retirement plan?

We are planning to retire when I reach age 65. If I follow the optimal SS strategy, it means that I will have to fund the first 4 yrs of our retirement completely from our portfolio.
Following that strategy, I am estimating that my WR will be around 6.1% for those first 4 yrs. Once SS kicks in for both of us, the WR goes down to 2%

If I were to take my SS at my full retirement age (66yrs and 8 months), I would only have the 6.1% WR for 1 yr. After that, our WR would go down to 3.9% and then drop further to 2.7% after my wife’s SS kicks in

Would it be wise to follow the optimal SS strategy or does it make more sense to take a smaller SS benefit earlier (my full retirement age is 66 yrs 8 months) to lower my initial withdrawal rate?

Hopefully, this post makes sense, and thanks for reading

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Mullins
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Re: Which SS strategy makes more sense?

Post by Mullins » Fri Nov 15, 2019 10:14 am

To help me decide I also looked at the dollar amount I'd have to self-fund if delaying my SS until 70, and further noted it wouldn't be until I'm 82 that I break-even, but what really grabbed me was that it wouldn't be until 95+ that I'd maybe match what I estimate I might have gained on the savings I would've kept invested if I had started at FRA and not had to use that portion to self-fund.

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Re: Which SS strategy makes more sense?

Post by Dottie57 » Fri Nov 15, 2019 10:29 am

I have done the same calcs too. But. I know I want the largest monthly payment so that for the rest of my life I need much less from my accounts. I’m single so my decision is easier as it doesn’t impact a spouse.

Dandy
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Re: Which SS strategy makes more sense?

Post by Dandy » Fri Nov 15, 2019 10:37 am

You can't forget about your wife having a larger inflation protected income from the higher SS by you waiting until age 70. Also, the lower income while you wait could create opportunity to lower your future tax rate by doing some Roth conversions or withdrawing from your TIRA to help fund the wait - this would lower your RMD income from age 70 on.

If you can end up with a 2% withdrawal rate from age 70 and beyond - sounds pretty good.

Giving your complete financial picture might change things a bit. But based on what you posted it seems the wait is still a better choice.

goblue100
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Re: Which SS strategy makes more sense?

Post by goblue100 » Fri Nov 15, 2019 10:40 am

Dottie57 wrote:
Fri Nov 15, 2019 10:29 am
I have done the same calcs too. But. I know I want the largest monthly payment so that for the rest of my life I need much less from my accounts. I’m single so my decision is easier as it doesn’t impact a spouse.
It is even more important to get the biggest check for a couple.
To the OP, you realize this is one of those topics with fervent boosters on each side of aisle? And it has been discussed many, many times on the forum?
I'm on the wait to 70 side, provided you and your spouse are in good health for your age. You are essentially buying an annuity at far better than market rates, and one that is inflation adjusted.
Here are some other discussions, some of which have other discussions linked.
viewtopic.php?t=258166
viewtopic.php?t=245275
Last edited by goblue100 on Fri Nov 15, 2019 10:45 am, edited 1 time in total.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

ExitStageLeft
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Re: Which SS strategy makes more sense?

Post by ExitStageLeft » Fri Nov 15, 2019 10:41 am

The problem with any divination of strategy is that you can't know in advance what your lifespan will be, nor what market returns and inflation will be. I am coming to the point where I am looking at strategies that make the most sense regardless of how those unknowns turn out.

If the majority of your portfolio is in tax-deferred, then the upside to delaying SS and spending down the portfolio is that it reduces your required minimum distribution (RMD) at age 70.5.

If you have a much younger spouse, there is a high likelihood that she will outlive you. If you were the higher earner, delaying your SS until age 70 maximizes what her annual annuity will be.

If you are a single person with no RMD concerns then it really doesn't matter when you take it. The benefit is designed to be actuarially neutral, so go with what makes sense with the rest of your retirement plan.

dbr
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Re: Which SS strategy makes more sense?

Post by dbr » Fri Nov 15, 2019 10:44 am

Most retirement models include the feature that you can select when SS starts and what the amount is. That allows a person to compare results. Even that old warhorse FireCalc does that.

As to criteria for evaluating the choice, breakeven age for accumulated benefits is not the only issue. Postponing SS amounts in effect to a cheap* purchase of an inflation indexed lifetime annuity, which has the benefit of offsetting longevity risk. This may be attractive to some retirees.

*Cheap because the rate at which the payout increases between ages 62 and 70 is substantial. But note the spousal benefit for someone delaying SS does not increase after that spouses FRA. The benefit structure is complicated enough that one goes and runs SS advisor models such as you have done.

Bir48die
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Re: Which SS strategy makes more sense?

Post by Bir48die » Fri Nov 15, 2019 11:13 am

These choices are not always set in stone. Sure in general it's better to wait until 70 for higher payouts and a larger spousal benefit. I am keeping this decision fluid on where I claim at FRA or 70. My wife has the ability to receive some additional benefits if I die before her so we're not as inclined to have to wait.

Another factor is what happens with your portfolio. If you plan on a 6.1% WR at today's value then what happens if you have a decrease in your portfolio size of 40%? Then the decision could be made for you. I think we all go into these decisions with a general plan but that doesn't mean we'll stick to it.

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Re: Which SS strategy makes more sense?

Post by smitcat » Fri Nov 15, 2019 12:09 pm

downrod wrote:
Fri Nov 15, 2019 9:55 am
I have ran Open Social Security to determine our best strategy for taking SS.
It shows that the optimal strategy for us is to wait until I reach 70 to take my benefits, and that my wife should take hers early at age 62. She is 7 yrs younger than I, so I will be 69 when she starts taking benefits.
This strategy is designed to get us the most possible SS over our lifetime. I understand this strategy, but my question is what affect will it have on my overall retirement plan?

We are planning to retire when I reach age 65. If I follow the optimal SS strategy, it means that I will have to fund the first 4 yrs of our retirement completely from our portfolio.
Following that strategy, I am estimating that my WR will be around 6.1% for those first 4 yrs. Once SS kicks in for both of us, the WR goes down to 2%

If I were to take my SS at my full retirement age (66yrs and 8 months), I would only have the 6.1% WR for 1 yr. After that, our WR would go down to 3.9% and then drop further to 2.7% after my wife’s SS kicks in

Would it be wise to follow the optimal SS strategy or does it make more sense to take a smaller SS benefit earlier (my full retirement age is 66 yrs 8 months) to lower my initial withdrawal rate?

Hopefully, this post makes sense, and thanks for reading
Our goal was not to maximize SS or to maximize our overall SS and investment income but rather to maximize our overall 'spendable' dollars after tax from SS and all other sources.
We modeled outcomes based upon a number of possibilities including: various investment returns, various SS start dates, and various ages of demise for each of us (we are also about 7 yrs apart).
Utilizing the extended IORP calculator to do quick and valuable 'what ifs' with these variables and then taking a few of the most likely scenarios and doing a deeper dive with the RPM spreadsheet calculator - the RPM takes a lot of time but is well worth it in our opinion.
We then spot checked a few of the RPM years outputs with tax software to see if it was in range for us - every time it was.
Dependent upon your exact inputs and where your funds are held these tools will give you some excellent feedback.
FWIW - in our case it is best to delay SS and utilize Roth conversions and portfolio funds in the interim.

Big Dog
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Re: Which SS strategy makes more sense?

Post by Big Dog » Fri Nov 15, 2019 12:15 pm

We are planning to retire when I reach age 65. If I follow the optimal SS strategy, it means that I will have to fund the first 4 yrs of our retirement completely from our portfolio.
And Open SS accounts for this. (Don't forget to try the Advanced tab and change the mortality tables.)

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Re: Which SS strategy makes more sense?

Post by Broken Man 1999 » Fri Nov 15, 2019 12:34 pm

Prior to DW turning 62, we set up an appointment with SS office nearby.

Very helpful, knowledgeable staff. I was very pleased with the experience. The SS person ran our info, and she advised us that the break-even for us would be in the ages of eighty-something. So DW started at age 62.

I was receiving SSDI, based on FRA. The SSDI converted to regular SS at FRA, same amount. DW will get a bump when I pass, if I understand correctly. My income was always much higher than DW's.

Truth be told, that $44,000/year amount remaining in our portfolio as a result of our SS benefits has been growing nicely. Might be better dollar-wise than both of us waiting until a later date. Or, might not. Not going to make a meaningful difference in our lifestyle either way.

At any rate, there are lots of things that go into making a decision when to start receiving SS benefits, some that cannot be measured in $$$.

I prefer seeing $$$ entering my accounts, rather than $$$ exiting. I am an optimist, I think Mr. Market will beat the extra SS benefit we could have received had we delayed the benefits.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain

Topic Author
Chip Shot
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Re: Which SS strategy makes more sense?

Post by Chip Shot » Fri Nov 15, 2019 12:53 pm

smitcat wrote:
Fri Nov 15, 2019 12:09 pm
downrod wrote:
Fri Nov 15, 2019 9:55 am
I have ran Open Social Security to determine our best strategy for taking SS.
It shows that the optimal strategy for us is to wait until I reach 70 to take my benefits, and that my wife should take hers early at age 62. She is 7 yrs younger than I, so I will be 69 when she starts taking benefits.
This strategy is designed to get us the most possible SS over our lifetime. I understand this strategy, but my question is what affect will it have on my overall retirement plan?

We are planning to retire when I reach age 65. If I follow the optimal SS strategy, it means that I will have to fund the first 4 yrs of our retirement completely from our portfolio.
Following that strategy, I am estimating that my WR will be around 6.1% for those first 4 yrs. Once SS kicks in for both of us, the WR goes down to 2%

If I were to take my SS at my full retirement age (66yrs and 8 months), I would only have the 6.1% WR for 1 yr. After that, our WR would go down to 3.9% and then drop further to 2.7% after my wife’s SS kicks in

Would it be wise to follow the optimal SS strategy or does it make more sense to take a smaller SS benefit earlier (my full retirement age is 66 yrs 8 months) to lower my initial withdrawal rate?

Hopefully, this post makes sense, and thanks for reading
Our goal was not to maximize SS or to maximize our overall SS and investment income but rather to maximize our overall 'spendable' dollars after tax from SS and all other sources.
We modeled outcomes based upon a number of possibilities including: various investment returns, various SS start dates, and various ages of demise for each of us (we are also about 7 yrs apart).
Utilizing the extended IORP calculator to do quick and valuable 'what ifs' with these variables and then taking a few of the most likely scenarios and doing a deeper dive with the RPM spreadsheet calculator - the RPM takes a lot of time but is well worth it in our opinion.
We then spot checked a few of the RPM years outputs with tax software to see if it was in range for us - every time it was.
Dependent upon your exact inputs and where your funds are held these tools will give you some excellent feedback.
FWIW - in our case it is best to delay SS and utilize Roth conversions and portfolio funds in the interim.
Thanks for the great information. I will dig deeper into this

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ObliviousInvestor
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Re: Which SS strategy makes more sense?

Post by ObliviousInvestor » Fri Nov 15, 2019 1:18 pm

downrod, on the topic of how Social Security claiming fits into a broader retirement spending strategy, there are an assortment of papers on the topic. Here are two that are worth reading, in my opinion:
http://longevity.stanford.edu/wp-conten ... -final.pdf
https://crr.bc.edu/wp-content/uploads/2 ... 019-13.pdf

Note that the first paper above is essentially a summary of a part of a broader piece of research, here:
http://longevity.stanford.edu/wp-conten ... ersion.pdf

And as noted above, yes, Open Social Security does account for forgone investment returns (i.e., the returns you miss out on, due to having to spend down the portfolio faster if you delay benefits).
Mike Piper, author/blogger

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Chip Shot
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Re: Which SS strategy makes more sense?

Post by Chip Shot » Fri Nov 15, 2019 1:42 pm

ObliviousInvestor wrote:
Fri Nov 15, 2019 1:18 pm
downrod, on the topic of how Social Security claiming fits into a broader retirement spending strategy, there are an assortment of papers on the topic. Here are two that are worth reading, in my opinion:
http://longevity.stanford.edu/wp-conten ... -final.pdf
https://crr.bc.edu/wp-content/uploads/2 ... 019-13.pdf

Note that the first paper above is essentially a summary of a part of a broader piece of research, here:
http://longevity.stanford.edu/wp-conten ... ersion.pdf

And as noted above, yes, Open Social Security does account for forgone investment returns (i.e., the returns you miss out on, due to having to spend down the portfolio faster if you delay benefits).
Awesome! Thank you so much for the material to read. I must have missed something on the Open Social Security calculator. I will re-visit

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JoeRetire
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Re: Which SS strategy makes more sense?

Post by JoeRetire » Fri Nov 15, 2019 2:42 pm

downrod wrote:
Fri Nov 15, 2019 9:55 am
We are planning to retire when I reach age 65. If I follow the optimal SS strategy, it means that I will have to fund the first 4 yrs of our retirement completely from our portfolio. Following that strategy, I am estimating that my WR will be around 6.1% for those first 4 yrs. Once SS kicks in for both of us, the WR goes down to 2%
Okay. Is that a bad thing? Seems fine to me.
If I were to take my SS at my full retirement age (66yrs and 8 months), I would only have the 6.1% WR for 1 yr. After that, our WR would go down to 3.9% and then drop further to 2.7% after my wife’s SS kicks in
So why would that be better?
Would it be wise to follow the optimal SS strategy
You get to decide what feels better to you - the optimal strategy or the sub-optimal strategy. We all value different things.
For me, I don't see any value to the sub-optimal strategy. And one of my goals has been to maximize my wife's future inflation-protected survivor benefits. Your mileage may vary.

https://www.kitces.com/blog/how-delayin ... y-can-buy/

"Nonetheless, the decision to delay Social Security can be evaluated based on the implicit rate of return it creates by choosing to delay, and over longer time horizons – when clients may “need the money most” as they have more years of retirement expenses to cover in the first place – the return of the Social Security delay becomes quite compelling. In fact, the return is generally far superior to any risk-adjusted returns that can be achieved over comparable time periods by the available alternatives, whether investing in risk-free bonds, growth equities, or buying a commercially available annuity. And because the system is indexed to inflation, its real returns will be maintained even if inflation rises, and will only become better if longevity continues to increase as well. In fact, ultimately the decision to delay Social Security delivers the best results when there is either unexpected inflation, unusually long longevity, or especially bad market returns, which are the exact three scenarios that traditional portfolios are the least effective at managing, making the decision to delay Social Security the ultimate form of “anti-fragile” triple hedge!"
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

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JoeRetire
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Re: Which SS strategy makes more sense?

Post by JoeRetire » Fri Nov 15, 2019 2:50 pm

Broken Man 1999 wrote:
Fri Nov 15, 2019 12:34 pm
At any rate, there are lots of things that go into making a decision when to start receiving SS benefits, some that cannot be measured in $$$.
Could you talk about some of those non-$$$ things that go into making the claiming decision?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

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Re: Which SS strategy makes more sense?

Post by Darth Xanadu » Fri Nov 15, 2019 3:09 pm

JoeRetire wrote:
Fri Nov 15, 2019 2:50 pm
Broken Man 1999 wrote:
Fri Nov 15, 2019 12:34 pm
At any rate, there are lots of things that go into making a decision when to start receiving SS benefits, some that cannot be measured in $$$.
Could you talk about some of those non-$$$ things that go into making the claiming decision?
I didn't make the comment, but I can imagine a scenario in which, at the extreme, an individual is paralyzed by fear of spending accumulated assets, and thus lives poorly for 5+ years; perhaps claiming early, while potentially sub-optimal from a financial perspective, leads to a higher quality of life for those 5+ years, with little appreciable impact on the later years.
"A courageous teacher, failure is."

Broken Man 1999
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Re: Which SS strategy makes more sense?

Post by Broken Man 1999 » Fri Nov 15, 2019 3:23 pm

couple of things I think about, in no particular order:

1. Health of the participants. DWs health OK. Mine, mostly OK.
2. Guesses about longevity of the participants. DWs longevity, if at all genetic, will be longer than mine. And, being the lower earner, she will get a bump up.
3. Actual need to worry about having more later. SS only provides maybe a third of our expenses. It truly will make no difference in our lifestyle.
4. I prefer to keep our money in our portfolio. Just my preference. Without SS, more of our income would be taxed, wouldn't have that 15% SS untaxed freebie.
5. The old saying, a bird in the hand... I have that SS bird in my hand (actually DW and I have two birds in our hands).
6. The various SS calculators are no more accurate when expected returns are beat against the various SS strategies than any other calculation. The SS portion can be dead on, but the measuring stick one must use as a comparison in determining the best SS strategy suffers from lack of reliable forecasting, as most all forecasts of the market(s). Could market returns exceed the premium delayed SS brings? I can say positively the 4 years since DW started SS at 62, absolutely. Will it continue? Maybe, maybe not. Does it really matter to me? No, not at all.

In our situation, the decision simply isn't important. We have enough.

Broken Man 1999

ETA: When I pass, immediately the expenses for my health care aides will go down $15,000/year (at today's rates), everything else remaining the same. Right now those expenses are paid with SS and portfolio withdrawals.
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain

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Re: Which SS strategy makes more sense?

Post by RubyTuesday » Fri Nov 15, 2019 3:38 pm

JoeRetire wrote:
Fri Nov 15, 2019 2:42 pm
You get to decide what feels better to you - the optimal strategy or the sub-optimal strategy. We all value different things.
For me, I don't see any value to the sub-optimal strategy. And one of my goals has been to maximize my wife's future inflation-protected survivor benefits. Your mileage may vary.
How do you decide inputs to model your optimal solution?

This is not meant to be political or discussing future legislation.

That said...

If you assume no future legislation will fix the funding issue, then SS will be reduced in by 23% in 2034. (I may have the percent or date off but precision not my point here).

I personally have not taken this concern into account, but opensocialsecurity allows you to model it. When I model reduced benefits, optimal claiming strategy changes significantly.

Also when I choose different mortality table assumptions I get different optimal strategies.

We’re still years away from first (early) eligibility to file, so I’ll monitor situation as we approach first opportunity to claim.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu

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JoeRetire
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Re: Which SS strategy makes more sense?

Post by JoeRetire » Fri Nov 15, 2019 4:20 pm

RubyTuesday wrote:
Fri Nov 15, 2019 3:38 pm
JoeRetire wrote:
Fri Nov 15, 2019 2:42 pm
You get to decide what feels better to you - the optimal strategy or the sub-optimal strategy. We all value different things.
For me, I don't see any value to the sub-optimal strategy. And one of my goals has been to maximize my wife's future inflation-protected survivor benefits. Your mileage may vary.
How do you decide inputs to model your optimal solution?
I use https://opensocialsecurity.com/
The inputs come from SSA.gov and from facts about myself and my wife.
If you assume no future legislation will fix the funding issue, then SS will be reduced in by 23% in 2034. (I may have the percent or date off but precision not my point here).

I personally have not taken this concern into account, but opensocialsecurity allows you to model it. When I model reduced benefits, optimal claiming strategy changes significantly.
With my data it doesn't change significantly. (But I wouldn't assume that no future legislation would fix the funding issue.)
Also when I choose different mortality table assumptions I get different optimal strategies.
Of course.

One of the bigger variables in this model is mortality. If you knew precisely when you were going to die, then the rest is just math.

But since you cannot know that, you either have to guess based on your knowledge of yourself, your family history, your health, your healthy/non-healthy habits, etc, etc, or you just go with one of the provided models that gives some average mortality data.
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Re: Which SS strategy makes more sense?

Post by milktoast » Fri Nov 15, 2019 4:24 pm

Be flexible. In a market like today, 6% withdrawal to extend SS likely makes sense. Especially if you are selling mainly bonds. The expected value of delaying SS a year is higher than bond yield.

But if the market was down 40%, you might want to start claiming SS to preserve your portfolio in hopes of a recovery. Maybe write something in your IPS to cover this.

And yes, I know that I just advocated market timing. But sorry, most bear markets recover.

Withdrawal portion of my IPS has a statement about not selling stock in a bear market (SP500 down more than 20% from peak) unless my bonds fall to half their portfolio target (meaning I'm in very serious trouble and I better be cutting expenses to the bone).

Right now, I don't have anything about claiming SS in there, but probably should add it. I'd rather claim pre-70 than sell stocks into a bear.

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Watty
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Re: Which SS strategy makes more sense?

Post by Watty » Fri Nov 15, 2019 8:52 pm

Something to keep in mind is that a dollar in Social Security can be worth a lot more than a dollar in investment income since it may be taxed less.

1) At most 85% of the Social Security would be taxed. Depending on your numbers it is possible that none of it would be taxed.

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

2) Many states do not tax Social Security.

This could be especially important if one of you survives the other and is then filing tax returns in the higher single tax brackets.

Doing Roth conversions after you retire but before you start Social Security could also help reduce your taxes later when you could be in the income range where each extra dollar in income causes more of your Social Security to be taxed.

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Re: Which SS strategy makes more sense?

Post by smitcat » Sat Nov 16, 2019 9:40 am

Watty wrote:
Fri Nov 15, 2019 8:52 pm
Something to keep in mind is that a dollar in Social Security can be worth a lot more than a dollar in investment income since it may be taxed less.

1) At most 85% of the Social Security would be taxed. Depending on your numbers it is possible that none of it would be taxed.

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

2) Many states do not tax Social Security.

This could be especially important if one of you survives the other and is then filing tax returns in the higher single tax brackets.

Doing Roth conversions after you retire but before you start Social Security could also help reduce your taxes later when you could be in the income range where each extra dollar in income causes more of your Social Security to be taxed.
+1 - excellent summary.

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Re: Which SS strategy makes more sense?

Post by GAAP » Sat Nov 16, 2019 6:49 pm

You might want to review the TVM thread (Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example) at viewtopic.php?t=274243.

The spreadsheet includes examples that are similar to your situation.
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Re: Which SS strategy makes more sense?

Post by JW-Retired » Sun Nov 17, 2019 10:13 am

downrod wrote:
Fri Nov 15, 2019 9:55 am
Would it be wise to follow the optimal SS strategy or does it make more sense to take a smaller SS benefit earlier (my full retirement age is 66 yrs 8 months) to lower my initial withdrawal rate?
It depends. Will you be paying much in income taxes? What state do you live in? If it's a high tax state that (like most) doesn't tax SS at all, that should make it a really easy decision. Your Fed + state tax rate on your RMDs might easily be half again larger than that on your SS (like mine is). :shock:

Maximize your low taxed income!
JW
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