....Start SS at December of FRA?

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Nestegg_User
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....Start SS at December of FRA?

Post by Nestegg_User » Sat Jun 15, 2019 7:27 pm

Status: currently eligible to start SS,
(examining start parameters)
-- Spouse, younger and with slightly higher PIA
-- Currently have WR below 2 ½ %, and SS wouldn’t be major source of income (likely less than 15%) (use 3.5% as upper limit for WR)
-- Already anticipate SS to be 85% taxable, based on pension, etc
-- Have seven figures in 401k / IRA’s (and seven figures in taxable, as well (wasn’t prudent to do Roth conversions before retirement, when at 33% marginal Fed rate plus state taxes)
-- FRA is mid-year
-- Covered by FEHB, and may not even take Part B (TBD)
-- No heirs (created trust decade ago to deal with any estate issues)
-- Expected longevity is slightly above nominal, but unlikely to be very extended (I’m aware that genetics only account for ~20% of variability (only one person in extended family made it past mid-80’s, with some (including parents) passingin 50’s-62), but was employed in a career with notably shorter lifespans (e.g., couldn’t get super-preferred rates for LI)

In examining start date, looked at both current SS payout and consideration of 25% “haircut”, It appears an optimum start would be in the December of the year of FRA. Any “breakeven”/TVM for the “haircut” gives a slightly earlier period, but with only marginally better values (for ages 78/82/85), so don’t argue for any earlier claiming, but delaying instead allows for longer period to do Roth conversions.

It seems the advantage might be:
-- Draw of SS at FRA (plus) allows for monies otherwise used to further increase and are available for either surviving spouse
-- The start of SS in December allows for minimal SS income that year, and thus more available room for Roth conversions that year
-- Further, the start of SS in December means that any increases due to the (minimal) DRC’s get applied in the new year, rather than waiting to be applied in the following year per current regs if waiting until a January or later start
-- Since the application of SS is at or beyond FRA, if the younger spouse waits to apply at 70, and if they predecease, there would not be any penalty and I would be eligible for SS at their higher (age 70) levels
-- The “hold harmless provision” for Part B would be invoked after the first year, and would reduce the likelihood of adverse Part B increases that non-SS members would be subjected to
-- If I predecease significantly, then spouse gets (effectively) full SS benefits (FRA) as survivor and could defer their own SS to 70 for maximum benefit

I’ve already written into IPS that SS would start early if adverse conditions in the market cause a correction that would cause greater than a 3.5% draw. That we currently have WR below 3% despite fairly major outlays (new furnace/ heat pump, new vehicle, surgeries, vet bills, etc) implies that either course of action (FRA plus or age 70 start) wouldn’t significantly affect lifestyle/survivability of us as couple or either as survivor (pension has 50% survivor benefit), although taxes as a single versus MFJ would obviously increase.

While I understand that SS is (foremost) an insurance program, that I’ve been adversely affected by changes in other areas (reduced pension and lower COLA, loss of “file and suspend” for our cohort, reduced amounts in 401k’s due to HCE rules, etc) and don’t want any revisions to SS claiming provisions to go into effect before starting my SS, I also acknowledge that there is some “get something out of all those decades of expense” that plays into my thought.

{edited for easier reading. The prior draft didn't copy well with formatting... }
Last edited by Nestegg_User on Sat Jun 15, 2019 9:03 pm, edited 1 time in total.

Silk McCue
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Re: ....Start SS at December of FRA?

Post by Silk McCue » Sat Jun 15, 2019 8:35 pm

The formatting makes this very difficult to read for me and possibly for others. It appears pasted from a formatted source which doesn’t translate well here.

Cheers

Big Dog
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Re: ....Start SS at December of FRA?

Post by Big Dog » Sat Jun 15, 2019 8:39 pm


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Watty
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Re: ....Start SS at December of FRA?

Post by Watty » Sat Jun 15, 2019 8:59 pm

Big Dog wrote:
Sat Jun 15, 2019 8:39 pm
have you run https://opensocialsecurity.com
+1

That would be a good starting point.

It would be interesting to here what that website suggests but I would suspect that it will involve the higher earner delaying when they start Social Security at least part way to 70.

That web site does not take your taxes into account though. The numbers can work out a lot of ways but I would suspect that you will be in a high tax bracket while you are both living and when one of you dies the survivor would be in an even higher tax bracket when they start filing in the higher single tax brackets.

Social Security has a lot of tax benefits;
1) At most 85% of it is taxed
2) Many if not most states don't tax Social Security. In my state that is about a 6% savings.

That means that for someone in a high tax bracket a dollar in Social Security is worth a lot more than a dollar in taxable income.

I would take a hard look at delaying Social Security for a long time but the details of just how long depend on the rest of your numbers. This will allow you to;
1) Do Roth conversions in a lower tax bracket for a few more years.
2) The Roth conversions will lower the IRA balance so that you will need to take a smaller RMD each year.
3) Lock in the current tax rates in case they go up in the future.

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Nestegg_User
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Re: ....Start SS at December of FRA?

Post by Nestegg_User » Sat Jun 15, 2019 9:11 pm

Watty

as I said, the PIA for spouse is just slightly higher and anticipate delaying to 70 for it (subject to health considerations etc.)
already expected SS to have no state tax effects, just Fed with expected 85% taxable (even before RMD's)... we've already done "tax gain harvesting" and taken some gains at zero (we don't have anything to TLH right now anymore)... and next steps are Roth conversions to top of 22%. The Roth conversions will only take so much out of the pot, there's no way to convert even most of it, but since RMD's aren't that high (sub 4% initially), they'll just be more stuffed into the taxable.
[allocation is 45/50/5 overall]

Carl53
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Re: ....Start SS at December of FRA?

Post by Carl53 » Sat Jun 15, 2019 9:25 pm

Nestegg_User wrote:
Sat Jun 15, 2019 9:11 pm
Watty

as I said, the PIA for spouse is just slightly higher and anticipate delaying to 70 for it (subject to health considerations etc.)
already expected SS to have no state tax effects, just Fed with expected 85% taxable (even before RMD's)... we've already done "tax gain harvesting" and taken some gains at zero (we don't have anything to TLH right now anymore)... and next steps are Roth conversions to top of 22%. The Roth conversions will only take so much out of the pot, there's no way to convert even most of it, but since RMD's aren't that high (sub 4% initially), they'll just be more stuffed into the taxable.
[allocation is 45/50/5 overall]
In this case having the slightly higher PIA spouse take their SS at your FRA allowing you to get a spousal rate of 50% of their PIA and then taking your own at 70 very well may be more optimum.

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Re: ....Start SS at December of FRA?

Post by Nestegg_User » Sat Jun 15, 2019 9:39 pm

Carl53 wrote:
Sat Jun 15, 2019 9:25 pm
Nestegg_User wrote:
Sat Jun 15, 2019 9:11 pm
Watty

as I said, the PIA for spouse is just slightly higher and anticipate delaying to 70 for it (subject to health considerations etc.)
already expected SS to have no state tax effects, just Fed with expected 85% taxable (even before RMD's)... we've already done "tax gain harvesting" and taken some gains at zero (we don't have anything to TLH right now anymore)... and next steps are Roth conversions to top of 22%. The Roth conversions will only take so much out of the pot, there's no way to convert even most of it, but since RMD's aren't that high (sub 4% initially), they'll just be more stuffed into the taxable.
[allocation is 45/50/5 overall]
In this case having the slightly higher PIA spouse take their SS at your FRA allowing you to get a spousal rate of 50% of their PIA and then taking your own at 70 very well may be more optimum.
The problem would be the "deemed filing" aspect that would be invoked.... also since my SS is almost spouse's there's really no benefit there (as I noted, neither is eligible for file and suspend)


{I had usually assumed that (1) I'd wait until 70 to file, with Roth conversions until then, (2) spouse would also wait until 70 to file, so many years later. In examining the effect of the "haircut" posed in another thread, I had to reexamine that approach. All it appeared to do is have the large slug of funds in my later 70's/spouse at 70... when the utility of those funds is lower, all while delaying more use in these times (my earlier 60's)... not exactly optimal. After all, the potential income in excess of 200k/yr in later 70's just results in a higher tax bracket. }

{ETA: I guess I'm gonna have to read up on the thread "What lifestyle creep made you happier?" and blow more dough}

Carl53
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Re: ....Start SS at December of FRA?

Post by Carl53 » Sun Jun 16, 2019 12:22 pm

I may have misread your original post, but it appears to me that you are FRA mid year this year. If so you were born prior to 1/1/54 and are eligible to file a restricted spousal application as long as your spouse files for their own to begin at the same date or earlier. Opensocialsecurity.com can sort it out. I put in PIAs of 2000/2100 for you and spouse, guessing spouse at 3 years younger with a $60000+ greater present worth for filing restricted spousal this year. When you reach 70 you then file for own increased benefits.

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Re: ....Start SS at December of FRA?

Post by Nestegg_User » Sun Jun 16, 2019 3:14 pm

Sorry Carl 53

As I mentioned in original post, I'm not eligible for file and suspend.... FRA isn't this year
(I'm in the planning stage.... already past 62, but not yet FRA)

Ran that calculator and it spit out:
Me at 70 / spouse at 62 and one month

after playing around, and trying my alternate, then further optimizing... I'd say the true optimum was:
Me at 70 / spouse at 64 ! which is a bit surprising...

It gives about 2500 more per year when both alive, with an NPV only about 10K lower,
and only a couple hundred less per year than their solution for the surviving spouse

Silk McCue
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Re: ....Start SS at December of FRA?

Post by Silk McCue » Sun Jun 16, 2019 3:30 pm

Nestegg_User wrote:
Sun Jun 16, 2019 3:14 pm
after playing around, and trying my alternate, then further optimizing... I'd say the true optimum was:
Me at 70 / spouse at 64 ! which is a bit surprising...
Using the advanced options definitely changes the calculus and thus the "surprising" answer.

I really appreciate what MIke Piper has done by giving us this tool. I

Cheers

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Watty
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Re: ....Start SS at December of FRA?

Post by Watty » Sun Jun 16, 2019 4:05 pm

Nestegg_User wrote:
Sat Jun 15, 2019 9:11 pm
Watty

as I said, the PIA for spouse is just slightly higher and anticipate delaying to 70 for it (subject to health considerations etc.)
already expected SS to have no state tax effects, just Fed with expected 85% taxable (even before RMD's)... we've already done "tax gain harvesting" and taken some gains at zero (we don't have anything to TLH right now anymore)... and next steps are Roth conversions to top of 22%. The Roth conversions will only take so much out of the pot, there's no way to convert even most of it, but since RMD's aren't that high (sub 4% initially), they'll just be more stuffed into the taxable.
[allocation is 45/50/5 overall]
You should also take another look at the numbers for doing Roth conversions up to the top of the 24% tax bracket.

That is only 2% higher and the 22% federal tax bracket will revert to 25% in 2026 if nothing is done to change it.

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Re: ....Start SS at December of FRA?

Post by Nestegg_User » Sun Jun 16, 2019 5:11 pm

Silk McCue wrote:
Sun Jun 16, 2019 3:30 pm
Nestegg_User wrote:
Sun Jun 16, 2019 3:14 pm
after playing around, and trying my alternate, then further optimizing... I'd say the true optimum was:
Me at 70 / spouse at 64 ! which is a bit surprising...
Using the advanced options definitely changes the calculus and thus the "surprising" answer.

I really appreciate what MIke Piper has done by giving us this tool. I

Cheers

Well, I didn't use his advanced set, I did my own optimization..... (requires some iteration)

Tried his advanced features afterwards using 2017 preferred survival and then with the "haircut" applied -
both gave lower SS with significantly lower survivor SS values (even without "haircut").... but I'm seeing
he only optimizes based on NPV (with discount of 0.63), whereas I was looking at total SS income with highest
amount of survivors SS in the nearest year I could start. [Since IRMAA surcharge starts around 170 k, and uses
only half of SS toward that, it makes more sense to max out SS and use IRA/401k (with supplement from taxable)
to provide income until SS start; and of course, try to stay below limits prior to starting SS and Part B (which I'm still
on the fence about taking if we'll be in IRMAA, since we have FEHB plans that may not require it for adequate coverage)

Plugging in the numbers for pension, SS, and max of 3.5% of portfolio puts us above IRMAA right now (assuming no growth)
but enough is in taxable that we don't have to touch that we should be able to stay below threshold, at least initially.
[Watty, We have to be concerned about trying to convert too much to stay away from IRMAA threshold the two years prior to
Part B ... which, alas, is right about now.... but looking again, max of 24% MFJ is 165k while IRMAA is 170K, just squeeks in... ]
{yeah, I know, first world problems of having relatively large retirement income; I'm guessing we won't get any
sympathy points from the general population.... and might not get any here either}

The Wizard
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Re: ....Start SS at December of FRA?

Post by The Wizard » Sun Jun 16, 2019 6:39 pm

Nestegg_User wrote:
Sun Jun 16, 2019 5:11 pm
...[Watty, We have to be concerned about trying to convert too much to stay away from IRMAA threshold the two years prior to
Part B ... which, alas, is right about now.... but looking again, max of 24% MFJ is 165k while IRMAA is 170K, just squeeks in... ]
{yeah, I know, first world problems of having relatively large retirement income; I'm guessing we won't get any
sympathy points from the general population.... and might not get any here either}
Not quite right.
Top of 22% bracket for this year is around $168k of Taxable Income, MFJ. This means an AGI around $192k minus $24k standard deduction.

IRMAA is based on MAGI>=AGI, so you'd be well over the $170k of the first IRMAA threshold.

Note: top of 24% bracket MFJ is around $321k Taxable Income this year...
Attempted new signature...

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