Delaying Social Security

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
grok87
Posts: 9293
Joined: Tue Feb 27, 2007 9:00 pm

Re: Delaying Social Security

Post by grok87 »

JoeRetire wrote: Mon Feb 22, 2021 12:37 pm
grok87 wrote: Mon Feb 22, 2021 12:27 pm under current law, it is estimated by the trustees that social securities benefits will be reduced by 24% starting in 2034. IMHO that needs to be factored into any serious analysis of this issue. Not trying to start a political discussion here. just saying analyzing things consistent with current law seems like a reasonable approach.
All good tools include that factor in the analysis.
https://opensocialsecurity.com/ does.

It's just some assumptions and some math. You can choose to vary the assumptions if you like.
thanks. i just tried it out. looks very useful. took me a while to find out how to factor in the expected 24% cut starting in 2034 (again under current law)
RIP Mr. Bogle.
User avatar
JoeRetire
Posts: 7252
Joined: Tue Jan 16, 2018 2:44 pm

Re: Delaying Social Security

Post by JoeRetire »

grok87 wrote: Mon Feb 22, 2021 1:36 pm
JoeRetire wrote: Mon Feb 22, 2021 12:37 pm
grok87 wrote: Mon Feb 22, 2021 12:27 pm under current law, it is estimated by the trustees that social securities benefits will be reduced by 24% starting in 2034. IMHO that needs to be factored into any serious analysis of this issue. Not trying to start a political discussion here. just saying analyzing things consistent with current law seems like a reasonable approach.
All good tools include that factor in the analysis.
https://opensocialsecurity.com/ does.

It's just some assumptions and some math. You can choose to vary the assumptions if you like.
thanks. i just tried it out. looks very useful. took me a while to find out how to factor in the expected 24% cut starting in 2034 (again under current law)
It's a terrific tool - by far the best, most comprehensive free social security tool out there.

IMHO, it's important to explore the "advanced" options. The "Possible Future Cut" option for sure. Also explore the "Mortality Table" options, and in particular the "Assumed age at death" choice to see what might work out best in the event of a long lifetime.
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.
FactualFran
Posts: 1240
Joined: Sat Feb 21, 2015 2:29 pm

Re: Delaying Social Security

Post by FactualFran »

bikechuck wrote: Mon Feb 22, 2021 10:07 am They are delaying four years so they can capture a 36% increase in their benefits (1.08)x(1.08)×(1.08)×(1.08) for the rest of their life. However, depending on how we manage our way through the rapidly depleting SS Trust fund they might not see the increased benefits they are hoping for. If benefits are cut or if we see means testing will they still be financially better off for waiting? Perhaps but perhaps not ... no one knows or can know for sure.
The delayed retirement credits do not compound. Delaying for four years increases the benefit amount by 32%. It is useful to know how Social Security benefits are actually calculated before speculating about means testing and other changes that no one knows.
User avatar
#Cruncher
Posts: 3140
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Delaying Social Security

Post by #Cruncher »

Carl53 wrote: Sun Feb 21, 2021 7:54 amI note that you correctly show the increase of 30.7% for taking SS at age 70 versus your 1955 FRA of 66 years 2 months. But you state your FRA PIA is 2300 and that at age 70 your benefit is $1000 greater.
As Carl53 implies, if the Primary Insurance Amount (PIA) at Full Retirement Age (FRA) of 66+2mo is $2,300, then the increase from delaying to age 70 should be 705 constant dollars, not 1,000. (See Effect of Early or Delayed Retirement on Retirement Benefits.)

marcopolo wrote: Sun Feb 21, 2021 10:46 pm
bikechuck wrote: Sun Feb 21, 2021 9:41 pmI am waiting until 70 but with the state of the SS Trust Fund I disagree that the 8% return you reference is risk free and guaranteed.
The OP is 66. There is essentially 0% chance that anything will change for them prior to age 70. Any changes after that would be there whether they delay or not.
If we compare starting SS at a later age (ageL) versus an early age (ageE), starting at ageE will be relatively better if any future reduction occurs after ageE. Only if the reduction occurred before ageE would it have no effect on the comparison between starting at the two ages. To illustrate, if there is no future reduction, by delaying from 66+2mo to 70, the original poster would earn a +2.0% real return if he collects SS until age 85.

Code: Select all

Row        Col A   Col B     Col C     Col D    Col E   Col F
  3         Born    1955
  4          NRA   66.17
  5  Year change    2034
  6   Pct change      0%
  7    Start age             66.17     70.00
  8   Pct of PIA            100.00    130.67
  9         Year     Age     Early      Late     Diff     IRR

Code: Select all

 10         2018      63                              
 11         2019      64                              
 12         2020      65                              
 13         2021      66                              
 14         2022      67     83.33             (83.33)
 15         2023      68    100.00            (100.00)
 16         2024      69    100.00            (100.00)
 17         2025      70    100.00            (100.00)
 18         2026      71    100.00    130.67    30.67 
 19         2027      72    100.00    130.67    30.67 
 20         2028      73    100.00    130.67    30.67
 21         2029      74    100.00    130.67    30.67  (25.1%)
 22         2030      75    100.00    130.67    30.67  (18.4%)
 23         2031      76    100.00    130.67    30.67  (13.5%)
 24         2032      77    100.00    130.67    30.67   (9.9%)
 25         2033      78    100.00    130.67    30.67   (7.1%)
 26         2034      79    100.00    130.67    30.67   (4.9%)
 27         2035      80    100.00    130.67    30.67   (3.1%)
 28         2036      81    100.00    130.67    30.67   (1.7%)
 29         2037      82    100.00    130.67    30.67   (0.5%)
 30         2038      83    100.00    130.67    30.67    0.5% 
 31         2039      84    100.00    130.67    30.67    1.3% 
 32         2040      85    100.00    130.67    30.67    2.0%
However, if SS benefits were cut 24% beginning in 2034, his return would be only +0.9%. This is because, by delaying he forsakes the same 383.33% of his PIA. But instead of being compensated with 30.67% of his PIA every subsequent year, he only gets that 30.67% for 9 years. After that he only gets 23.31% more.

Code: Select all

Row        Col A   Col B     Col C     Col D    Col E   Col F
  5  Year change    2034
  6   Pct change    -24%
  9         Year     Age     Early      Late     Diff     IRR
...
 25         2033      78    100.00    130.67    30.67   (7.1%)
 26         2034      79    100.00    130.67    30.67   (4.9%)
 27         2035      80     76.00     99.31    23.31   (3.5%) <=== 24% less
 28         2036      81     76.00     99.31    23.31   (2.3%)
 29         2037      82     76.00     99.31    23.31   (1.3%)
 30         2038      83     76.00     99.31    23.31   (0.5%)
 31         2039      84     76.00     99.31    23.31    0.3% 
 32         2040      85     76.00     99.31    23.31    0.9%
To repeat this calculation with other assumptions, follow these steps:
  • Select All, Copy, and Paste [ * ] the following at cell A3 of a blank Excel sheet:

    Code: Select all

    Born	1955
    NRA	=MIN(67,66+MAX(0,B3-1954)/6)
    Year change	2034
    Pct change	-0.24
    Start age		=B4	70
    Pct of PIA		=100*IF(C7<$B4,1-(5/900)*MIN(36,($B4-C7)*12)-(5/1200)*MAX(0,($B4-C7)*12-36),1+(8/1200)*(C7-$B4)*12)
    Year	Age	Early	Late	Diff	IRR
    =B3+63	63	=IF($B10<=C$7,0,IF($B10>INT(C$7)+1,C$8,C$8*(1-MOD(C$7,1))))*IF($A10<=$B$5,1,1+$B$6)	=IF($B10<=D$7,0,IF($B10>INT(D$7)+1,D$8,D$8*(1-MOD(D$7,1))))*IF($A10<=$B$5,1,1+$B$6)	=D10-C10	=IRR(E$10:E10)
    =A10+1	=B10+1	=IF($B11<=C$7,0,IF($B11>INT(C$7)+1,C$8,C$8*(1-MOD(C$7,1))))*IF($A11<=$B$5,1,1+$B$6)	=IF($B11<=D$7,0,IF($B11>INT(D$7)+1,D$8,D$8*(1-MOD(D$7,1))))*IF($A11<=$B$5,1,1+$B$6)	=D11-C11	=IRR(E$10:E11)
  • Copy cell C8 right to column D.
  • Copy cells A11:F11 down to row 32.
  • Format for readability.
  • Modify assumptions as needed in cells B3, B5:B6, and C7:D7.

JoeRetire wrote: Mon Feb 22, 2021 12:31 pm
jeffyscott wrote: Mon Feb 22, 2021 11:33 amI feel like a lot of people act as if they will never die. Look at all the posters here calling delaying SS a risk-free, guaranteed, 8% return. The only way it is that is if you will never die.
You are confused. Nobody is saying anything that would require "never die" to accomplish.
jeffyscott is correct. The only way delaying one year beyond FRA can generate an 8% return is if the extra benefit continued forever. Anything less and the return is less than 8%. For example, if the increased benefit continued 20 years, the return would be 5%.
5.0% = RATE(20, 8, -100, 0, 0)

* If you have trouble pasting, try "Paste Special" and "Text".
User avatar
jeffyscott
Posts: 9479
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Delaying Social Security

Post by jeffyscott »

FactualFran wrote: Mon Feb 22, 2021 4:19 pm
bikechuck wrote: Mon Feb 22, 2021 10:07 am They are delaying four years so they can capture a 36% increase in their benefits (1.08)x(1.08)×(1.08)×(1.08) for the rest of their life. However, depending on how we manage our way through the rapidly depleting SS Trust fund they might not see the increased benefits they are hoping for. If benefits are cut or if we see means testing will they still be financially better off for waiting? Perhaps but perhaps not ... no one knows or can know for sure.
The delayed retirement credits do not compound. Delaying for four years increases the benefit amount by 32%. It is useful to know how Social Security benefits are actually calculated before speculating about means testing and other changes that no one knows.
In fact, it is a smaller percentage increase each year in that one year's delay means you get 108% of the PIA, a second year's delay means you get 116% of PIA, so the year over year increase is about 7.4%, the third year increase would be about 6.9%. The OP was born in 1955 so FRA is 66 and 2 months, so can not quite get a full 4th year of delay, but for those who can the increase for that year would be about 6.5%.

Depending on year of birth the age 70 benefit can be anywhere from 124% of the PIA to 132% of the PIA, while for every one (not already passed 70) the age 62 benefit is 75% to 80%. So the average annualized benefit increase over the full 8 years is actually about 7.3% or 7.4%.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
marcopolo
Posts: 4045
Joined: Sat Dec 03, 2016 10:22 am

Re: Delaying Social Security

Post by marcopolo »

You are right, of course.
I was thinking in terms of the commutative property of multiplication. But, that only holds, as you explain, if the cuts occur before AgeE.

Thanks for the detailed analysis.
#Cruncher wrote: Mon Feb 22, 2021 5:14 pm
Carl53 wrote: Sun Feb 21, 2021 7:54 amI note that you correctly show the increase of 30.7% for taking SS at age 70 versus your 1955 FRA of 66 years 2 months. But you state your FRA PIA is 2300 and that at age 70 your benefit is $1000 greater.
As Carl53 implies, if the Primary Insurance Amount (PIA) at Full Retirement Age (FRA) of 66+2mo is $2,300, then the increase from delaying to age 70 should be 705 constant dollars, not 1,000. (See Effect of Early or Delayed Retirement on Retirement Benefits.)

marcopolo wrote: Sun Feb 21, 2021 10:46 pm
bikechuck wrote: Sun Feb 21, 2021 9:41 pmI am waiting until 70 but with the state of the SS Trust Fund I disagree that the 8% return you reference is risk free and guaranteed.
The OP is 66. There is essentially 0% chance that anything will change for them prior to age 70. Any changes after that would be there whether they delay or not.
If we compare starting SS at a later age (ageL) versus an early age (ageE), starting at ageE will be relatively better if any future reduction occurs after ageE. Only if the reduction occurred before ageE would it have no effect on the comparison between starting at the two ages. To illustrate, if there is no future reduction, by delaying from 66+2mo to 70, the original poster would earn a +2.0% real return if he collects SS until age 85.

Code: Select all

Row        Col A   Col B     Col C     Col D    Col E   Col F
  3         Born    1955
  4          NRA   66.17
  5  Year change    2034
  6   Pct change      0%
  7    Start age             66.17     70.00
  8   Pct of PIA            100.00    130.67
  9         Year     Age     Early      Late     Diff     IRR

Code: Select all

 10         2018      63                              
 11         2019      64                              
 12         2020      65                              
 13         2021      66                              
 14         2022      67     83.33             (83.33)
 15         2023      68    100.00            (100.00)
 16         2024      69    100.00            (100.00)
 17         2025      70    100.00            (100.00)
 18         2026      71    100.00    130.67    30.67 
 19         2027      72    100.00    130.67    30.67 
 20         2028      73    100.00    130.67    30.67
 21         2029      74    100.00    130.67    30.67  (25.1%)
 22         2030      75    100.00    130.67    30.67  (18.4%)
 23         2031      76    100.00    130.67    30.67  (13.5%)
 24         2032      77    100.00    130.67    30.67   (9.9%)
 25         2033      78    100.00    130.67    30.67   (7.1%)
 26         2034      79    100.00    130.67    30.67   (4.9%)
 27         2035      80    100.00    130.67    30.67   (3.1%)
 28         2036      81    100.00    130.67    30.67   (1.7%)
 29         2037      82    100.00    130.67    30.67   (0.5%)
 30         2038      83    100.00    130.67    30.67    0.5% 
 31         2039      84    100.00    130.67    30.67    1.3% 
 32         2040      85    100.00    130.67    30.67    2.0%
However, if SS benefits were cut 24% beginning in 2034, his return would be only +0.9%. This is because, by delaying he forsakes the same 383.33% of his PIA. But instead of being compensated with 30.67% of his PIA every subsequent year, he only gets that 30.67% for 9 years. After that he only gets 23.31% more.

Code: Select all

Row        Col A   Col B     Col C     Col D    Col E   Col F
  5  Year change    2034
  6   Pct change    -24%
  9         Year     Age     Early      Late     Diff     IRR
...
 25         2033      78    100.00    130.67    30.67   (7.1%)
 26         2034      79    100.00    130.67    30.67   (4.9%)
 27         2035      80     76.00     99.31    23.31   (3.5%) <=== 24% less
 28         2036      81     76.00     99.31    23.31   (2.3%)
 29         2037      82     76.00     99.31    23.31   (1.3%)
 30         2038      83     76.00     99.31    23.31   (0.5%)
 31         2039      84     76.00     99.31    23.31    0.3% 
 32         2040      85     76.00     99.31    23.31    0.9%
To repeat this calculation with other assumptions, follow these steps:
  • Select All, Copy, and Paste [ * ] the following at cell A3 of a blank Excel sheet:

    Code: Select all

    Born	1955
    NRA	=MIN(67,66+MAX(0,B3-1954)/6)
    Year change	2034
    Pct change	-0.24
    Start age		=B4	70
    Pct of PIA		=100*IF(C7<$B4,1-(5/900)*MIN(36,($B4-C7)*12)-(5/1200)*MAX(0,($B4-C7)*12-36),1+(8/1200)*(C7-$B4)*12)
    Year	Age	Early	Late	Diff	IRR
    =B3+63	63	=IF($B10<=C$7,0,IF($B10>INT(C$7)+1,C$8,C$8*(1-MOD(C$7,1))))*IF($A10<=$B$5,1,1+$B$6)	=IF($B10<=D$7,0,IF($B10>INT(D$7)+1,D$8,D$8*(1-MOD(D$7,1))))*IF($A10<=$B$5,1,1+$B$6)	=D10-C10	=IRR(E$10:E10)
    =A10+1	=B10+1	=IF($B11<=C$7,0,IF($B11>INT(C$7)+1,C$8,C$8*(1-MOD(C$7,1))))*IF($A11<=$B$5,1,1+$B$6)	=IF($B11<=D$7,0,IF($B11>INT(D$7)+1,D$8,D$8*(1-MOD(D$7,1))))*IF($A11<=$B$5,1,1+$B$6)	=D11-C11	=IRR(E$10:E11)
  • Copy cell C8 right to column D.
  • Copy cells A11:F11 down to row 32.
  • Format for readability.
  • Modify assumptions as needed in cells B3, B5:B6, and C7:D7.

JoeRetire wrote: Mon Feb 22, 2021 12:31 pm
jeffyscott wrote: Mon Feb 22, 2021 11:33 amI feel like a lot of people act as if they will never die. Look at all the posters here calling delaying SS a risk-free, guaranteed, 8% return. The only way it is that is if you will never die.
You are confused. Nobody is saying anything that would require "never die" to accomplish.
jeffyscott is correct. The only way delaying one year beyond FRA can generate an 8% return is if the extra benefit continued forever. Anything less and the return is less than 8%. For example, if the increased benefit continued 20 years, the return would be 5%.
5.0% = RATE(20, 8, -100, 0, 0)

* If you have trouble pasting, try "Paste Special" and "Text".
Once in a while you get shown the light, in the strangest of places if you look at it right.
ColoRetiredGirl
Posts: 253
Joined: Mon Nov 13, 2017 11:40 pm
Location: Colorado

Re: Delaying Social Security

Post by ColoRetiredGirl »

Rudedog wrote: Sun Feb 21, 2021 9:11 am Its an educated guess, based upon your expected life span. The only reason I am waiting past FRA to claim social security is to provide my wife with larger survivor's benefit. If I was single, I'd claim SS at FRA.
:confused Why should a single person take SS at FRA? Single people can live a long life as well so there remains a benefit to waiting until 70 yo.
User avatar
JoeRetire
Posts: 7252
Joined: Tue Jan 16, 2018 2:44 pm

Re: Delaying Social Security

Post by JoeRetire »

ColoRetiredGirl wrote: Mon Feb 22, 2021 6:03 pm
Rudedog wrote: Sun Feb 21, 2021 9:11 am Its an educated guess, based upon your expected life span. The only reason I am waiting past FRA to claim social security is to provide my wife with larger survivor's benefit. If I was single, I'd claim SS at FRA.
:confused Why should a single person take SS at FRA? Single people can live a long life as well so there remains a benefit to waiting until 70 yo.
Lots of single people have different opinions and situations.
- I know a good bunch of single people in the "I want my money as soon as I can get my hands on it" camp.
- I know a few single people in the "I want my money when I can enjoy it before I get too old" camp.
- And I know a few single people who wanted to retire near 62 and couldn't afford to do so without claiming their benefit.

As far as "should", (shrug).

I'm married. But I would delay until 70 even if I weren't. For me, the "longevity insurance" aspect is compelling.
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.
User avatar
jeffyscott
Posts: 9479
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Delaying Social Security

Post by jeffyscott »

JoeRetire wrote: Mon Feb 22, 2021 7:38 pm
ColoRetiredGirl wrote: Mon Feb 22, 2021 6:03 pm
Rudedog wrote: Sun Feb 21, 2021 9:11 am Its an educated guess, based upon your expected life span. The only reason I am waiting past FRA to claim social security is to provide my wife with larger survivor's benefit. If I was single, I'd claim SS at FRA.
:confused Why should a single person take SS at FRA? Single people can live a long life as well so there remains a benefit to waiting until 70 yo.
Lots of single people have different opinions and situations.
- I know a good bunch of single people in the "I want my money as soon as I can get my hands on it" camp.
- I know a few single people in the "I want my money when I can enjoy it before I get too old" camp.
- And I know a few single people who wanted to retire near 62 and couldn't afford to do so without claiming their benefit.

As far as "should", (shrug).

I'm married. But I would delay until 70 even if I weren't. For me, the "longevity insurance" aspect is compelling.
I am not sure what I would do were I single, but the expected benefit of delaying is smaller if one is single, so that could tilt things toward less delay. I'm probably not delaying all the way to 70 anyway, tentative plan is to take it before it's enough to push us into the next tax bracket.

I don't think there's anything special about taking it at FRA vs. any other age, though.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
smitcat
Posts: 7362
Joined: Mon Nov 07, 2016 10:51 am

Re: Delaying Social Security

Post by smitcat »

ColoRetiredGirl wrote: Mon Feb 22, 2021 6:03 pm
Rudedog wrote: Sun Feb 21, 2021 9:11 am Its an educated guess, based upon your expected life span. The only reason I am waiting past FRA to claim social security is to provide my wife with larger survivor's benefit. If I was single, I'd claim SS at FRA.
:confused Why should a single person take SS at FRA? Single people can live a long life as well so there remains a benefit to waiting until 70 yo.
I have not run the numbers for being single prior to 70 ...but if one of us were single it would be even more important to delay and accomplish Roth conversions prior to collecting SS.
ColoRetiredGirl
Posts: 253
Joined: Mon Nov 13, 2017 11:40 pm
Location: Colorado

Re: Delaying Social Security

Post by ColoRetiredGirl »

JoeRetire wrote: Mon Feb 22, 2021 7:38 pm
ColoRetiredGirl wrote: Mon Feb 22, 2021 6:03 pm
Rudedog wrote: Sun Feb 21, 2021 9:11 am Its an educated guess, based upon your expected life span. The only reason I am waiting past FRA to claim social security is to provide my wife with larger survivor's benefit. If I was single, I'd claim SS at FRA.
:confused Why should a single person take SS at FRA? Single people can live a long life as well so there remains a benefit to waiting until 70 yo.
Lots of single people have different opinions and situations.
- I know a good bunch of single people in the "I want my money as soon as I can get my hands on it" camp.
- I know a few single people in the "I want my money when I can enjoy it before I get too old" camp.
- And I know a few single people who wanted to retire near 62 and couldn't afford to do so without claiming their benefit.

As far as "should", (shrug).

I'm married. But I would delay until 70 even if I weren't. For me, the "longevity insurance" aspect is compelling.
Well I have heard the same reasons from married people. Expect on this forum, I have heard few people mention to delay for the spouse. I am waiting for the longevity insurance. However, I do not understand the “less benefit” for singles to delay statements made on this tread. Perhaps someone can run the numbers. :wink:
retireIn2020
Posts: 83
Joined: Sat Jan 04, 2020 6:13 pm

Re: Delaying Social Security

Post by retireIn2020 »

I'm single, and I look at the whole picture in terms of SS payout, SWR, taxes, IRMAA, and RMD's.

For me it makes more sense to to spend down savings prior to age 70-72.

1) Once I hit 70 and collect SS My savings withdrawal rate will drop to less than 2%.

2) Spending down savings in my 60's allows me to lower my RMD's once I hit 72.

3) Once I reach 70 my income will stay the same but a large portion will be SS causing Taxes to decrease (more money in my pocket).

Being single I have to try to pull as much as I can from tax deferred as often as I can without paying too much in taxes now as well as later on when RMD's kick in.
Retired as of July 2020
rgs92
Posts: 2842
Joined: Mon Mar 02, 2009 8:00 pm

Re: Delaying Social Security

Post by rgs92 »

averagedude wrote: Sun Feb 21, 2021 2:36 pm Their are many things to consider when it comes to delaying social security. Me personally, these are the things that I have to think about and i'm sure I am missing several things. Also all of these things that I am considering, I also have to consider my spouse also. Your things to consider will be different from mine. It really can be a complex math problem with many variables.
1. Life expectancy.
2. MAGI for subsidized premiums for health insurance until I am 65.
3. What percentage of my social security will be taxed.
4. RMD's on traditional tax deferred plans.
5. Impact of higher or lower investment returns, and how this affects taxes and the possibility of running out of money.
6. Maximizing the survivor benefit when one spouse dies.
7. Probability of working part time in retirement.
8. Piece of mind such as inflation protection and longevity risk.
9. The piece of mind of a larger social security check when it comes to medicaid planning /spousal impoverishment rules.
Great reply. I feel #8 is the most important reason by far. And that reason seems to make all the complicated calculations unnecessary.
[Note, there is a typo in #8 (should be "peace"; but it's the thought that counts). Thanks again for the excellent, thoughtful list.]
rgs92
Posts: 2842
Joined: Mon Mar 02, 2009 8:00 pm

Re: Delaying Social Security

Post by rgs92 »

And basically, no matter how long I live, I don't want to be unable to sleep at night because I am worried that my income is becoming insufficient. That is something I think everyone should fear.

Social Security not delayed is sleep denied.

(I just made that up, but I think it's true.)
User avatar
JoeRetire
Posts: 7252
Joined: Tue Jan 16, 2018 2:44 pm

Re: Delaying Social Security

Post by JoeRetire »

ColoRetiredGirl wrote: Mon Feb 22, 2021 10:07 pmHowever, I do not understand the “less benefit” for singles to delay statements made on this tread. Perhaps someone can run the numbers.
Spousal and survivor's benefits can be huge. Singles don't get those benefits.
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.
grok87
Posts: 9293
Joined: Tue Feb 27, 2007 9:00 pm

Re: Delaying Social Security

Post by grok87 »

rgs92 wrote: Mon Feb 22, 2021 11:10 pm And basically, no matter how long I live, I don't want to be unable to sleep at night because I am worried that my income is becoming insufficient. That is something I think everyone should fear.

Social Security not delayed is sleep denied.

(I just made that up, but I think it's true.)
you may be interested in this thread
viewtopic.php?f=10&t=245377
cheers,
grok
RIP Mr. Bogle.
User avatar
jeffyscott
Posts: 9479
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Delaying Social Security

Post by jeffyscott »

JoeRetire wrote: Tue Feb 23, 2021 6:24 am
ColoRetiredGirl wrote: Mon Feb 22, 2021 10:07 pmHowever, I do not understand the “less benefit” for singles to delay statements made on this tread. Perhaps someone can run the numbers.
Spousal and survivor's benefits can be huge. Singles don't get those benefits.
And to clarify further, it's delay for the higher earning spouse that has the greater benefit. The higher earning spouse's SS ends only when both spouses die and the second to die life expectancy is longer than that for a single person.

For the lower earning spouse, since the benefit effectively ends upon the death of either, there's actually value to delaying than there is for a single person.

Because of this, many have the lower earning spouse take SS at 62 and the higher earning at 70. That's my plan, except I probably won't go all the way to 70, due to taxes and IRMAA.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
ColoRetiredGirl
Posts: 253
Joined: Mon Nov 13, 2017 11:40 pm
Location: Colorado

Re: Delaying Social Security

Post by ColoRetiredGirl »

retireIn2020 wrote: Mon Feb 22, 2021 10:28 pm I'm single, and I look at the whole picture in terms of SS payout, SWR, taxes, IRMAA, and RMD's.

For me it makes more sense to to spend down savings prior to age 70-72.

1) Once I hit 70 and collect SS My savings withdrawal rate will drop to less than 2%.

2) Spending down savings in my 60's allows me to lower my RMD's once I hit 72.

3) Once I reach 70 my income will stay the same but a large portion will be SS causing Taxes to decrease (more money in my pocket).

Being single I have to try to pull as much as I can from tax deferred as often as I can without paying too much in taxes now as well as later on when RMD's kick in.

I am single as well. My concern is SS will be significantly reduced sooner than 2034. Therefore, instead of spending down my tax deferred account, I plan to do Roth conversions before age 72 to reduce my RMDs. I rather pay more taxes and have funds available rather than hoping SS would be a substitute for the same income stream. I am not sure this is a reasonable strategy.
smitcat
Posts: 7362
Joined: Mon Nov 07, 2016 10:51 am

Re: Delaying Social Security

Post by smitcat »

ColoRetiredGirl wrote: Tue Feb 23, 2021 9:33 am
retireIn2020 wrote: Mon Feb 22, 2021 10:28 pm I'm single, and I look at the whole picture in terms of SS payout, SWR, taxes, IRMAA, and RMD's.

For me it makes more sense to to spend down savings prior to age 70-72.

1) Once I hit 70 and collect SS My savings withdrawal rate will drop to less than 2%.

2) Spending down savings in my 60's allows me to lower my RMD's once I hit 72.

3) Once I reach 70 my income will stay the same but a large portion will be SS causing Taxes to decrease (more money in my pocket).

Being single I have to try to pull as much as I can from tax deferred as often as I can without paying too much in taxes now as well as later on when RMD's kick in.

I am single as well. My concern is SS will be significantly reduced sooner than 2034. Therefore, instead of spending down my tax deferred account, I plan to do Roth conversions before age 72 to reduce my RMDs. I rather pay more taxes and have funds available rather than hoping SS would be a substitute for the same income stream. I am not sure this is a reasonable strategy.
If you are going to make assumptions about various potential future events then your strategy will be customized to those events - whether or not that is reasonable will lie in the future that unfolds.
User avatar
#Cruncher
Posts: 3140
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Delaying Social Security

Post by #Cruncher »

jeffyscott wrote: Mon Feb 22, 2021 8:14 pmI'm probably not delaying all the way to 70 anyway, tentative plan is to take [Social Security] before it's enough to push us into the next tax bracket.
Before starting earlier than 70, I suggest looking carefully at the marginal tax on the increase in SS resulting from delaying. It may be smaller than you think. To illustrate I concocted the following example where SS passes beyond the point where the maximum 85% is taxable and at the same time ordinary income plus taxable SS less the standard deduction exactly equals the start of the 22% tax bracket. [*]

Increasing SS before that point has a 10.2% marginal tax rate (12% X 85%). But after that point the marginal tax rate is only 9.35% (22% X 42.5%) even though the additional income falls into the 22% bracket. This happens because, once the point is reached where the maximum 85% of SS is no longer taxed, for each additional $100 of SS only $42.50 is taxable.

The following table is for a 2021 Joint return with the standard deduction for an age 65+ couple. The middle column represents the case where SS has reached the point where additional SS is no longer 85% taxable and taxable income has reached the start of the 22% bracket. The left column shows the result with $10,000 less SS, and the right column shows the results with $10,000 more SS. The bottom of the table shows that the first $10,000 increase in SS causes tax to rise $1,020; but the second $10,000 increase in SS causes tax to rise only $935 -- even though the additional income in now in the 22% bracket.

Code: Select all

Social Security 50% threshhold    32,000   -------------->
Social Security 85% threshhold    44,000   -------------->
Floor: ord income 12% bracket     19,900   -------------->
Floor: ord income 22% bracket     81,050   -------------->
Non-SS Ordinary Income            63,574   63,574   63,574
Social Security Benefit           43,266   53,266   63,266
Non-SS plus 1/2 SS                85,207   90,207   95,207
50% SS taxable                     6,000    6,000    6,000
85% SS taxable                    30,776   39,276   43,526
Total SS taxable                  36,776   45,276   49,526
Adjusted gross income            100,350  108,850  113,100
Standard deduction 65+            27,800   27,800   27,800
Taxable Income                    72,550   81,050   85,300

Code: Select all

Taxable: ord income 22% bracket      -        -      4,250
Taxable: ord income 12% bracket   52,650   61,150   61,150
Taxable: ord income 10% bracket   19,900   19,900   19,900
Tax: ord income 22% bracket          -        -        935
Tax: ord income 12% bracket        6,318    7,338    7,338
Tax: ord income 10% bracket        1,990    1,990    1,990
Total tax                          8,308    9,328   10,263
Increased SS benefit                   10,000   10,000
Increased taxable SS                    8,500    4,250
Increased tax                           1,020      935
Marginal SS taxable                    85.00%   42.50%
Marginal tax rate                      10.20%    9.35%
The figures above were prepared with the "Compare" sheet of my Marginal Tax Rates Excel workbook. I suggest, jeffyscott, plugging your estimates of tax exempt, non-SS ordinary income, and long term gains plus qualified dividends into the "Main" sheet to graphically see the marginal tax rates for increasing SS benefits.

Edited 4:25 PM to illustrate using the "Main" sheet: Here are the inputs corresponding to my example above.

Code: Select all

Tax year                         2021
Single or Joint Return          Joint
Number filers age 65 or older       2
Tax exempt interest                 0
Non-SS Ordinary Income         63,574
LTCG & QDI                          0
Social Security Benefit       <blank>
Deductions                    <blank>
Exemption                     <blank>
* Here are the formulas for determining SS and ordinary income that meet this double requirement.

Code: Select all

AGI = Adjusted Gross Income = $81,050 start of 22% bracket plus $27,800 standard deduction
 T1 = $32,000 = 50% SS threshold for joint return
 T2 = $44,000 = 85% SS threshold for joint return
 SS = Social Security benefit
 OI = Other income
 
       SS = (0.85 * AGI    - 0.5  * T1    - 0.35 * T2)    / 1.1475
53,265.80 = (0.85 * 108850 - 0.5  * 32000 - 0.35 * 44000) / 1.1475

       OI =         AGI    - 0.85 * SS
63,574.07 =         108850 - 0.85 * 53265.80
Last edited by #Cruncher on Tue Feb 23, 2021 4:25 pm, edited 1 time in total.
User avatar
CyclingDuo
Posts: 4036
Joined: Fri Jan 06, 2017 9:07 am

Re: Delaying Social Security

Post by CyclingDuo »

jeffyscott wrote: Tue Feb 23, 2021 8:02 am
JoeRetire wrote: Tue Feb 23, 2021 6:24 am
ColoRetiredGirl wrote: Mon Feb 22, 2021 10:07 pmHowever, I do not understand the “less benefit” for singles to delay statements made on this tread. Perhaps someone can run the numbers.
Spousal and survivor's benefits can be huge. Singles don't get those benefits.
And to clarify further, it's delay for the higher earning spouse that has the greater benefit. The higher earning spouse's SS ends only when both spouses die and the second to die life expectancy is longer than that for a single person.

For the lower earning spouse, since the benefit effectively ends upon the death of either, there's actually value to delaying than there is for a single person.

Because of this, many have the lower earning spouse take SS at 62 and the higher earning at 70. That's my plan, except I probably won't go all the way to 70, due to taxes and IRMAA.
It was interesting to read what age people took SS pertaining to the type of spender(s) they were in the EBRI document regarding "one size does not fit all"...

https://www.ebri.org/docs/default-sourc ... f503c2f_10

https://www.ebri.org/docs/default-sourc ... 5e443a2f_2
"Save like a pessimist, invest like an optimist." - Morgan Housel
User avatar
jeffyscott
Posts: 9479
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Delaying Social Security

Post by jeffyscott »

#Cruncher wrote: Tue Feb 23, 2021 1:49 pm
jeffyscott wrote: Mon Feb 22, 2021 8:14 pmI'm probably not delaying all the way to 70 anyway, tentative plan is to take [Social Security] before it's enough to push us into the next tax bracket.
Before starting earlier than 70, I suggest looking carefully at the marginal tax on the increase in SS resulting from delaying. It may be smaller than you think.
Thanks, I am a long way from having to make a decision and will be looking in more detail when it's closer. I did do some initial estimates and didn't see a point where additional SS would be taxed at a lower rate like that. It also happened that about the point where more SS hit a higher tax bracket was also about the point where a sole survivor would likely stay just below where IRMAA applies. So I thought maybe that would be as good a place as any to stop delaying. As of now that might be 65-68, that keeps us in the 12% bracket and sole survivor out of IRMAA, but could look different by the time I get there.

I believe our pensions result in 85% of every dollar of SS being taxed, no matter when we take it. That and other aspects could change, of course.

I don't understand what would make the tax rate on additional SS fall, but it doesn't seem to occur for us. In our range of expected income and SS, I see marginal rates on additional SS of 10.2% and then 18.7%.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
Carl53
Posts: 2065
Joined: Sun Mar 07, 2010 8:26 pm

Re: Delaying Social Security

Post by Carl53 »

#Cruncher wrote: Tue Feb 23, 2021 1:49 pm
jeffyscott wrote: Mon Feb 22, 2021 8:14 pmI'm probably not delaying all the way to 70 anyway, tentative plan is to take [Social Security] before it's enough to push us into the next tax bracket.
Before starting earlier than 70, I suggest looking carefully at the marginal tax on the increase in SS resulting from delaying. It may be smaller than you think. To illustrate I concocted the following example where SS passes beyond the point where the maximum 85% is taxable and at the same time ordinary income plus taxable SS less the standard deduction exactly equals the start of the 22% tax bracket. [*]

Increasing SS before that point has a 10.2% marginal tax rate (12% X 85%). But after that point the marginal tax rate is only 9.35% (22% X 42.5%) even though the additional income falls into the 22% bracket. This happens because, once the point is reached where the maximum 85% of SS is no longer taxed, for each additional $100 of SS only $42.50 is taxable.

The following table is for a 2021 Joint return with the standard deduction for an age 65+ couple. The middle column represents the case where SS has reached the point where additional SS is no longer 85% taxable and taxable income has reached the start of the 22% bracket. The left column shows the result with $10,000 less SS, and the right column shows the results with $10,000 more SS. The bottom of the table shows that the first $10,000 increase in SS causes tax to rise $1,020; but the second $10,000 increase in SS causes tax to rise only $935 -- even though the additional income in now in the 22% bracket.

Code: Select all

Social Security 50% threshhold    32,000   -------------->
Social Security 85% threshhold    44,000   -------------->
Floor: ord income 12% bracket     19,900   -------------->
Floor: ord income 22% bracket     81,050   -------------->
Non-SS Ordinary Income            63,574   63,574   63,574
Social Security Benefit           43,266   53,266   63,266
Non-SS plus 1/2 SS                85,207   90,207   95,207
50% SS taxable                     6,000    6,000    6,000
85% SS taxable                    30,776   39,276   43,526
Total SS taxable                  36,776   45,276   49,526
Adjusted gross income            100,350  108,850  113,100
Standard deduction 65+            27,800   27,800   27,800
Taxable Income                    72,550   81,050   85,300

Code: Select all

Taxable: ord income 22% bracket      -        -      4,250
Taxable: ord income 12% bracket   52,650   61,150   61,150
Taxable: ord income 10% bracket   19,900   19,900   19,900
Tax: ord income 22% bracket          -        -        935
Tax: ord income 12% bracket        6,318    7,338    7,338
Tax: ord income 10% bracket        1,990    1,990    1,990
Total tax                          8,308    9,328   10,263
Increased SS benefit                   10,000   10,000
Increased taxable SS                    8,500    4,250
Increased tax                           1,020      935
Marginal SS taxable                    85.00%   42.50%
Marginal tax rate                      10.20%    9.35%
The figures above were prepared with the "Compare" sheet of my Marginal Tax Rates Excel workbook. I suggest, jeffyscott, plugging your estimates of tax exempt, non-SS ordinary income, and long term gains plus qualified dividends into the "Main" sheet to graphically see the marginal tax rates for increasing SS benefits.

Edited 4:25 PM to illustrate using the "Main" sheet: Here are the inputs corresponding to my example above.

Code: Select all

Tax year                         2021
Single or Joint Return          Joint
Number filers age 65 or older       2
Tax exempt interest                 0
Non-SS Ordinary Income         63,574
LTCG & QDI                          0
Social Security Benefit       <blank>
Deductions                    <blank>
Exemption                     <blank>
* Here are the formulas for determining SS and ordinary income that meet this double requirement.

Code: Select all

AGI = Adjusted Gross Income = $81,050 start of 22% bracket plus $27,800 standard deduction
 T1 = $32,000 = 50% SS threshold for joint return
 T2 = $44,000 = 85% SS threshold for joint return
 SS = Social Security benefit
 OI = Other income
 
       SS = (0.85 * AGI    - 0.5  * T1    - 0.35 * T2)    / 1.1475
53,265.80 = (0.85 * 108850 - 0.5  * 32000 - 0.35 * 44000) / 1.1475

       OI =         AGI    - 0.85 * SS
63,574.07 =         108850 - 0.85 * 53265.80
I look at my numbers a few years out on my spreadsheet and find them tantalizingly close to those in Cruncher's example. Yes I am delaying my SS until 70 but when I adjust my brackets, standard deduction and SS income for inflation (yeah I realize they are not all on the same indices but I'm using the same for all three) and realize that my RMD at 72 will likely increase for a number of years I find that 85% of my SS will become taxable just about the point at which I leave the 12% (22.2% of last non-SS $) bracket and possibly a few at the 22% (40.7% of last non-SS $) bracket. I forsee doing some QCDs but they always appear to be coming off at 22% as the SS being included in income is already maxed. I almost could see bunching QCDs in alternative years but there will not be much savings for me (some years it looks like I will have the few dollars at the 40.7% taxation level). The biggest fly in the ointment are the fixed numbers in the determination of how much SS is taxed that are not indexed for inflation. As inflation occurs most of the tax parameters are adjusted and if your non-SS income stays the same you might have a decreased fraction of your SS being taxed. In my case it appears that annual RMD increases will overwhelm the other non-SS fixed income and result in 85% of the annually increasing SS continuing to be taxed even before the 22% bracket will be incurred.
User avatar
#Cruncher
Posts: 3140
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Delaying Social Security

Post by #Cruncher »

jeffyscott wrote: Tue Feb 23, 2021 4:44 pmI don't understand what would make the tax rate on additional SS fall ...
It's because, for certain amounts of other income, the maximum 85% of a given Social Security benefit may be taxable. But if that SS benefit increases, it may reach a level where 85% of it is no longer taxable. At this point, only 42.5% of any additional benefit will be taxed. This is due to the way the taxable portion of SS is calculated, as explained in the Wiki's Taxation of Social Security benefits. Here is a graph that may help explain this.

Image

The blue line is the taxable portion of SS calculated by the formula explained in the Wiki, if there were no maximum. The orange line is 85% of the SS benefit. When the SS benefit is less than $53,266, the formula value exceeds the 85% maximum, so the taxable portion equals 85% of SS. But when the benefit exceeds $53,266 the formula value is less than the 85% maximum and that becomes the amount taxed. The green line represents the amount of SS that is taxed, which is the minimum of the blue and orange lines.

Here is a table of the values that the graph is based on. Note how in the upper part of the table each additional $100 of SS benefit causes $85 more to be taxed. But after the SS benefit reaches $53,300, each $100 of benefit only makes $42.50 more taxable.

Code: Select all

50% threshold   32,000
85% threshold   44,000
 Other income   63,574
   SS benefit  Formula   85% SS   Diff     Min    Incr

Code: Select all

       51,000   44,313   43,350    963   43,350
       51,100   44,355   43,435    920   43,435   85.00
       51,200   44,398   43,520    878   43,520   85.00
       51,300   44,440   43,605    835   43,605   85.00
       51,400   44,483   43,690    793   43,690   85.00
       51,500   44,525   43,775    750   43,775   85.00
       51,600   44,568   43,860    708   43,860   85.00
       51,700   44,610   43,945    665   43,945   85.00
       51,800   44,653   44,030    623   44,030   85.00
       51,900   44,695   44,115    580   44,115   85.00
       52,000   44,738   44,200    538   44,200   85.00
       52,100   44,780   44,285    495   44,285   85.00
       52,200   44,823   44,370    453   44,370   85.00
       52,300   44,865   44,455    410   44,455   85.00
       52,400   44,908   44,540    368   44,540   85.00
       52,500   44,950   44,625    325   44,625   85.00
       52,600   44,993   44,710    283   44,710   85.00
       52,700   45,035   44,795    240   44,795   85.00
       52,800   45,078   44,880    198   44,880   85.00
       52,900   45,120   44,965    155   44,965   85.00
       53,000   45,163   45,050    113   45,050   85.00
       53,100   45,205   45,135     70   45,135   85.00
       53,200   45,248   45,220     28   45,220   85.00 <===
       53,300   45,290   45,305    (15)  45,290   70.40 <===
       53,400   45,333   45,390    (57)  45,333   42.50 <===
       53,500   45,375   45,475   (100)  45,375   42.50
       53,600   45,418   45,560   (142)  45,418   42.50
       53,700   45,460   45,645   (185)  45,460   42.50
       53,800   45,503   45,730   (227)  45,503   42.50
       53,900   45,545   45,815   (270)  45,545   42.50
       54,000   45,588   45,900   (312)  45,588   42.50
       54,100   45,630   45,985   (355)  45,630   42.50
       54,200   45,673   46,070   (397)  45,673   42.50
       54,300   45,715   46,155   (440)  45,715   42.50
       54,400   45,758   46,240   (482)  45,758   42.50
       54,500   45,800   46,325   (525)  45,800   42.50
       54,600   45,843   46,410   (567)  45,843   42.50
       54,700   45,885   46,495   (610)  45,885   42.50
       54,800   45,928   46,580   (652)  45,928   42.50
       54,900   45,970   46,665   (695)  45,970   42.50
       55,000   46,013   46,750   (737)  46,013   42.50
For a given amount of non-SS income you can calculate the amount of SS corresponding to the point where 85% of it is no longer taxed.

Code: Select all

                                           If Other
                                             Income
                                           At Least
Single:      SS = 2 * other income - 57412   34,000
Joint:       SS = 2 * other income - 73882   44,000
Example: 53,266 = 2 * 63574        - 73882
User avatar
jeffyscott
Posts: 9479
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Delaying Social Security

Post by jeffyscott »

#Cruncher wrote: Wed Feb 24, 2021 8:33 am
jeffyscott wrote: Tue Feb 23, 2021 4:44 pmI don't understand what would make the tax rate on additional SS fall ...
It's because, for certain amounts of other income, the maximum 85% of a given Social Security benefit may be taxable. But if that SS benefit increases, it may reach a level where 85% of it is no longer taxable. At this point, only 42.5% of any additional benefit will be taxed. This is due to the way the taxable portion of SS is calculated, as explained in the Wiki's Taxation of Social Security benefits.
Thanks as it is explained there, for every $1 of "relevant income" above the upper bases ($34K single, $44K joint), 85 cents of your Social Security benefits become taxable. Where "relevant income" is your adjusted gross income, plus tax-exempt interest income, plus 50% of your Social Security benefits.

So it seems to be that a $2 increase in SS benefit may, at some point, increase your "relevant income" by only $1 and then 85% of that $1 is taxable income, thus only 42.5% of the additional benefit is taxable and so the effective tax rate may be 9.35% for additional SS benefits while other additional income would be taxed at 22%.

Based on your formula, whether or not I would get to that point is going to depend on RMDs (and Roth conversions). I'm going to check on that with your spreadsheet. I also won't be surprised if that part of tax law is changed and even if it is not, the non-indexing of the thresholds may change how things work out by the time I am deciding how long to delay.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
tibbitts
Posts: 12865
Joined: Tue Feb 27, 2007 6:50 pm

Re: Delaying Social Security

Post by tibbitts »

grok87 wrote: Mon Feb 22, 2021 12:27 pm
bikechuck wrote: Mon Feb 22, 2021 10:07 am
marcopolo wrote: Sun Feb 21, 2021 10:46 pm
bikechuck wrote: Sun Feb 21, 2021 9:41 pm
averagedude wrote: Sun Feb 21, 2021 12:08 am

You could possibly get better than an 8% return, but a 65 year old should pounce on a risk free guaranteed 8 percent, especially when it comes with inflation protection forever.
I am waiting until 70 but with the state of the SS Trust Fund I disagree that the 8% return you reference is risk free and guaranteed.
The OP is 66. There is essentially 0% chance that anything will change for them prior to age 70. Any changes after that would be there whether they delay or not. What do you think their risk is?
They are delaying four years so they can capture a 36% increase in their benefits (1.08)x(1.08)×(1.08)×(1.08) for the rest of their life. However, depending on how we manage our way through the rapidly depleting SS Trust fund they might not see the increased benefits they are hoping for. If benefits are cut or if we see means testing will they still be financially better off for waiting? Perhaps but perhaps not ... no one knows or can know for sure.

I too am waiting until 70 and hoping for the best but I do not consider my decision to be risk free and guaranteed.
agree.
under current law, it is estimated by the trustees that social securities benefits will be reduced by 24% starting in 2034. IMHO that needs to be factored into any serious analysis of this issue. Not trying to start a political discussion here. just saying analyzing things consistent with current law seems like a reasonable approach.
cheers
grok
I don't understand the resistance Bogleheads have to operating under the assumption of current law. Obviously that's unlikely to be the precise outcome but speculation on any other legislation is always shot down per forum policies.
wrongfunds
Posts: 2539
Joined: Tue Dec 21, 2010 3:55 pm

Re: Delaying Social Security

Post by wrongfunds »

Instead of treating SS income as being 85% taxed, can we instead agree to treat it as if getting a 15% tax break on SS income instead? Would that make some of the future tax calculation more palatable? I would be thrilled if I could get the 15% tax break on my W2 income :-)
User avatar
jeffyscott
Posts: 9479
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Delaying Social Security

Post by jeffyscott »

Carl53 wrote: Wed Feb 24, 2021 3:32 amI look at my numbers a few years out on my spreadsheet and find them tantalizingly close to those in Cruncher's example. Yes I am delaying my SS until 70 but when I adjust my brackets, standard deduction and SS income for inflation (yeah I realize they are not all on the same indices but I'm using the same for all three) and realize that my RMD at 72 will likely increase for a number of years I find that 85% of my SS will become taxable just about the point at which I leave the 12% (22.2% of last non-SS $) bracket and possibly a few at the 22% (40.7% of last non-SS $) bracket.
Playing with his spreadsheet, things change rapidly as other income exceeds $63,574. Initially there is a narrow blip with 18.7% effective tax on a small portion of additional SS benefits, but that quickly widens. Here's marginal rate graph for SS income from #cruncher's spreadsheet with $64,000 in other income, where the 18.7% rate just a blip:

Image

With another $5000 in other income, so $69,000, the 18.7% rate now applies to as much as about $20K of SS, from about $46K to $66K.

Image

I have only used current brackets via putting some our likely range of figures in #crunchers spreadsheet and what I find is that taxation of additional SS benefits becomes (and stays) 18.7%, if we leave the 12% bracket. Our combined SS benefit is not going to be large enough to get to the other side of that 18.7% rate. OTOH, with enough Roth conversions, low enough growth in TIRA, and low enough pension increases, it's possible that our other income will be below $63,574 and avoid the 18.7% rate entirely.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
User avatar
JoeRetire
Posts: 7252
Joined: Tue Jan 16, 2018 2:44 pm

Re: Delaying Social Security

Post by JoeRetire »

tibbitts wrote: Wed Feb 24, 2021 9:45 am I don't understand the resistance Bogleheads have to operating under the assumption of current law. Obviously that's unlikely to be the precise outcome but speculation on any other legislation is always shot down per forum policies.
You don't have to publicly speculate about any specific future legislation in order to predict that something will change between now and 2034, and to plan accordingly.

I'll be fully prepared in the unlikely event that 2034 arrives and nothing has changed. I'll also be prepared if what I suspect will happen actually occurs. It's not all that hard to prepare but be flexible.
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.
User avatar
JoeRetire
Posts: 7252
Joined: Tue Jan 16, 2018 2:44 pm

Re: Delaying Social Security

Post by JoeRetire »

wrongfunds wrote: Wed Feb 24, 2021 9:54 am Instead of treating SS income as being 85% taxed, can we instead agree to treat it as if getting a 15% tax break on SS income instead? Would that make some of the future tax calculation more palatable? I would be thrilled if I could get the 15% tax break on my W2 income :-)
I don't think "the glass is half full" viewpoints are permitted here! :wink:
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.
smitcat
Posts: 7362
Joined: Mon Nov 07, 2016 10:51 am

Re: Delaying Social Security

Post by smitcat »

wrongfunds wrote: Wed Feb 24, 2021 9:54 am Instead of treating SS income as being 85% taxed, can we instead agree to treat it as if getting a 15% tax break on SS income instead? Would that make some of the future tax calculation more palatable? I would be thrilled if I could get the 15% tax break on my W2 income :-)
Exactly - and when you delay you get that 15% discount on a larger number.
User avatar
jeffyscott
Posts: 9479
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Delaying Social Security

Post by jeffyscott »

smitcat wrote: Wed Feb 24, 2021 12:45 pm
wrongfunds wrote: Wed Feb 24, 2021 9:54 am Instead of treating SS income as being 85% taxed, can we instead agree to treat it as if getting a 15% tax break on SS income instead? Would that make some of the future tax calculation more palatable? I would be thrilled if I could get the 15% tax break on my W2 income :-)
Exactly - and when you delay you get that 15% discount on a larger number.
It's actually a 100% discount, then a 50% discount, then a 15% discount, then back to a 50% discount (I think). The issues and discussions revolve around that complexity. If it were simply that you add 85% of SS to your taxable income and that's all there was to it, there would be a lot less to discuss and analyze.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
wrongfunds
Posts: 2539
Joined: Tue Dec 21, 2010 3:55 pm

Re: Delaying Social Security

Post by wrongfunds »

jeffyscott wrote: Wed Feb 24, 2021 5:13 pm
smitcat wrote: Wed Feb 24, 2021 12:45 pm
wrongfunds wrote: Wed Feb 24, 2021 9:54 am Instead of treating SS income as being 85% taxed, can we instead agree to treat it as if getting a 15% tax break on SS income instead? Would that make some of the future tax calculation more palatable? I would be thrilled if I could get the 15% tax break on my W2 income :-)
Exactly - and when you delay you get that 15% discount on a larger number.
It's actually a 100% discount, then a 50% discount, then a 15% discount, then back to a 50% discount (I think). The issues and discussions revolve around that complexity. If it were simply that you add 85% of SS to your taxable income and that's all there was to it, there would be a lot less to discuss and analyze.
But it is *not* a cliff i.e. earning extra dollar does not effectively costs extra thousands of dollars in either increased taxes or reduced credits as far as your social security income is concerned. The variable discount only applies to the marginal social security dollar (I hope that is correct).

The tax structures have enough cliffs to worry about but to the best of my knowledge social security income tax discount is not one of them. This is what I have understood so far.
rgs92
Posts: 2842
Joined: Mon Mar 02, 2009 8:00 pm

Re: Delaying Social Security

Post by rgs92 »

grok87 wrote: Tue Feb 23, 2021 7:54 am
rgs92 wrote: Mon Feb 22, 2021 11:10 pm And basically, no matter how long I live, I don't want to be unable to sleep at night because I am worried that my income is becoming insufficient. That is something I think everyone should fear.

Social Security not delayed is sleep denied.

(I just made that up, but I think it's true.)
you may be interested in this thread
viewtopic.php?f=10&t=245377
cheers,
grok
Thank you! Quite a lot of food for thought. I see why it's in the wiki. Cheers also.
retireIn2020
Posts: 83
Joined: Sat Jan 04, 2020 6:13 pm

Re: Delaying Social Security

Post by retireIn2020 »

smitcat wrote: Tue Feb 23, 2021 10:19 am
ColoRetiredGirl wrote: Tue Feb 23, 2021 9:33 am
retireIn2020 wrote: Mon Feb 22, 2021 10:28 pm I'm single, and I look at the whole picture in terms of SS payout, SWR, taxes, IRMAA, and RMD's.

For me it makes more sense to to spend down savings prior to age 70-72.

1) Once I hit 70 and collect SS My savings withdrawal rate will drop to less than 2%.

2) Spending down savings in my 60's allows me to lower my RMD's once I hit 72.

3) Once I reach 70 my income will stay the same but a large portion will be SS causing Taxes to decrease (more money in my pocket).

Being single I have to try to pull as much as I can from tax deferred as often as I can without paying too much in taxes now as well as later on when RMD's kick in.
I am single as well. My concern is SS will be significantly reduced sooner than 2034. Therefore, instead of spending down my tax deferred account, I plan to do Roth conversions before age 72 to reduce my RMDs. I rather pay more taxes and have funds available rather than hoping SS would be a substitute for the same income stream. I am not sure this is a reasonable strategy.
When I say spend down, I'm mean use the portfolio, not deplete it! As I mentioned it's hard to draw it down without paying too much in taxes in the 1st place. I looked at Roth conversions and the determination was that I'll end up paying more taxes and actually drew my portfolio lower than spending it.
If you are going to make assumptions about various potential future events then your strategy will be customized to those events - whether or not that is reasonable will lie in the future that unfolds.
Well said, I believe you have to make your plan based on what is fact and law at present, speculating on what may or may not happen is illogical and you'll likely make the wrong choice (flipping a coin or even worse odds). In my mind, having been on this rock for a while, it seems big changes are always speculated but in reality they end up being much smaller changes.
Retired as of July 2020
Topic Author
chris319
Posts: 88
Joined: Thu Jan 28, 2021 6:04 pm

Re: Delaying Social Security

Post by chris319 »

O.P. here.

I am warming up to the idea of purchasing shares in a high-yield ETF and using the dividends from it to cover my monthly cash shortfall, sort of a roll-your-own annuity as described above, but with the ability to withdraw funds at will, and waiting 4 years until age 70 to collect SS.
wrongfunds
Posts: 2539
Joined: Tue Dec 21, 2010 3:55 pm

Re: Delaying Social Security

Post by wrongfunds »

Curious is to why "high yield" ETF is better suited for you than just total market or SP500 ETF. Do you believe that way you will not have to touch your principal and leave only on interest?
smitcat
Posts: 7362
Joined: Mon Nov 07, 2016 10:51 am

Re: Delaying Social Security

Post by smitcat »

jeffyscott wrote: Wed Feb 24, 2021 5:13 pm
smitcat wrote: Wed Feb 24, 2021 12:45 pm
wrongfunds wrote: Wed Feb 24, 2021 9:54 am Instead of treating SS income as being 85% taxed, can we instead agree to treat it as if getting a 15% tax break on SS income instead? Would that make some of the future tax calculation more palatable? I would be thrilled if I could get the 15% tax break on my W2 income :-)
Exactly - and when you delay you get that 15% discount on a larger number.
It's actually a 100% discount, then a 50% discount, then a 15% discount, then back to a 50% discount (I think). The issues and discussions revolve around that complexity. If it were simply that you add 85% of SS to your taxable income and that's all there was to it, there would be a lot less to discuss and analyze.
Its a 15% difference for us.
Topic Author
chris319
Posts: 88
Joined: Thu Jan 28, 2021 6:04 pm

Re: Delaying Social Security

Post by chris319 »

wrongfunds wrote: Thu Feb 25, 2021 8:38 am Curious is to why "high yield" ETF is better suited for you than just total market or SP500 ETF. Do you believe that way you will not have to touch your principal and leave only on interest?
That's the general idea, but the dividend income would only supplement my pension income.
Post Reply