Take social security early in down market and invest?

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climbingFool
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Take social security early in down market and invest?

Post by climbingFool »

My wife and I are both about 63.5 years old.
I looked into taking social security at 62 previously but decided to delay and do large conversions to ROTH.
We have been doing very large conversions the last couple years and decent size conversions earlier.
We had planned to scale back considerably on conversions this year to avoid too high Medicare costs that are based on income. I know we'll end up paying those higher Medicare costs once RMD's commence on the non ROTH money we have left. But now is a sure thing and the future isn't.

In this down market I have been starting to consider again if one of us (probably my wife) should take social security now and just invest the money. We do not need the money to live on. We also haven't touched any of our 401k, IRA, or ROTH money yet although I've been retired 4 years.

It seems intuitively obvious to me that in a highly down market the incentive to start SS early becomes greater - if you invest the money.
My wife's projected social security benefits are slightly less than mine.

Just trying overall to use social security the most wisely overall.

I have always been a very aggressive investor being 100 % in stocks (no bonds) and buying in down markets. We always legally maxed out our 401k and in down market years we maxed out IRA's also. It seems a shame to me to let this investment opportunity go by.
We would just stick it all in ETF's as we have plenty of money in individual stocks.
Thoughts?
theorist
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Re: Take social security early in down market and invest?

Post by theorist »

The guaranteed increase in benefit per year between 62 and full retirement age, visible e.g. here

https://www.ssa.gov/benefits/retirement ... ction.html

seems to be pretty reasonable. I gather you get 8% per year between FRA and 70, and it looks like more like 5% extra per year between 62 and FRA.

I think a guaranteed return of 5% is pretty good. (This doesn’t include the inflation adjustments.) if you don’t need the money I’d be inclined to wait to claim, and take the guaranteed win.
tj
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Re: Take social security early in down market and invest?

Post by tj »

theorist wrote: Tue Sep 20, 2022 11:20 pm The guaranteed increase in benefit per year between 62 and full retirement age, visible e.g. here

https://www.ssa.gov/benefits/retirement ... ction.html

seems to be pretty reasonable. I gather you get 8% per year between FRA and 70, and it looks like more like 5% extra per year between 62 and FRA.

I think a guaranteed return of 5% is pretty good. (This doesn’t include the inflation adjustments.) if you don’t need the money I’d be inclined to wait to claim, and take the guaranteed win.
It's not a guaranteed return though. It's simply delaying for an increased payment.
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celia
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Re: Take social security early in down market and invest?

Post by celia »

climbingFool wrote: Tue Sep 20, 2022 11:09 pm My wife and I are both about 63.5 years old.
I looked into taking social security at 62 previously but decided to delay and do large conversions to ROTH.
With your apparently large assets in tax-deferred, this was likely a great decision. (By the way, “Roth” is not an acronym. It is spelled with only the first letter capitalized, in honor of Senator William Roth Jr who sponsored legislation to create Roth IRAs.)
We have been doing very large conversions the last couple years and decent size conversions earlier.
We had planned to scale back considerably on conversions this year to avoid too high Medicare costs that are based on income. I know we'll end up paying those higher Medicare costs once RMD's commence on the non ROTH money we have left. But now is a sure thing and the future isn't.
I’m glad you had a plan. If you were to start converting now, would you be converting as much as you currently do? Do you convert MORE than the annual growth in tax-deferred? If not, the account values are going to be quite large when RMDs take effect.
In this down market I have been starting to consider again if one of us (probably my wife) should take social security now and just invest the money.
You would probably be better off in the long term just continuing doing Roth conversions that are much larger than the SS one of you would receive. Invest the converted amount instead of the SS so your SS can grow, instead of having the tax-deferred continue to grow. And, of course, everything in Roth IRAs should be in stock funds to maximize your future tax-free growth.
It seems intuitively obvious to me that in a highly down market the incentive to start SS early becomes greater - if you invest the money.
It seems intuitively obvious to me that in a highly down market the incentive to do Roth conversions becomes greater since you can convert more shares for the same taxes paid when the share prices are lower than usual. The more the markets go down, the more you can convert for the same tax hit.

For example, if you have stock funds or ETFs in tax-deferred and they were $100 a share at the beginning of the year but they have since dropped to $50 a share, if you convert them at half price and pay the taxes on the lower amount, when they return to their full value, it is as if you paid half price on the taxes. This assumes you paid the taxes from Taxable money that was not invested (so there are no tax implications in Taxable).
. . . It seems a shame to me to let this investment opportunity go by.
I agree. It’s not very often we see extended bull markets like this.

ClimbingFool, as I was reading the original post above, I started wondering if you really understand the benefit of doing Roth conversions in early retirement. Most of us see this as trying to “level out” our Taxable Income each year from retirement to the time we die. Level income from year to year implies level Income Taxes (unless tax laws change). We find that it is usually better to have level income (and taxes) each year than to have a few years of lower income in early retirement followed by higher income (and taxes) once RMDs and SS start. Is that how you originally planned your Roth conversions? Did you ever estimate the value of your tax/deferred accounts at age 72 and the corresponding RMDs that would then begin? (Estimate RMDs at 4% of the age 72 projected tax-deferred account value.)
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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JoeRetire
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Re: Take social security early in down market and invest?

Post by JoeRetire »

climbingFool wrote: Tue Sep 20, 2022 11:09 pmBut now is a sure thing and the future isn't.

It seems intuitively obvious to me that in a highly down market the incentive to start SS early becomes greater - if you invest the money.

I have always been a very aggressive investor being 100 % in stocks
I think I see a number of inconsistencies here.
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jeffyscott
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Re: Take social security early in down market and invest?

Post by jeffyscott »

The lower earner taking SS at 62 is often the best strategy.

The markets may be down a bit, but I don't think US stocks are yet particularly cheap. International do seem to be, but have been forever. Certainly future bond returns are higher.

In any case, the way you can account for and/or analyze the effect of that on your SS decision would be to use different discount rates at open SS. You can do that by checking the "additional input" box, here: https://opensocialsecurity.com/

Since the default real discount rate there is the long term TIPS yield, it may have already increased from something like -0.5% in the recent past to around +1.5% now.

Similarly, you can also input different discount rates in #crunchers "Longevity Estimator", here: http://eyebonds.info/downloads/index.html

Neither of these will fully account for everything, for example neither accounts for higher Medicare and/or ACA premiums, but they are at least a start.
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climbingFool
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Re: Take social security early in down market and invest?

Post by climbingFool »

celia wrote: Wed Sep 21, 2022 2:49 am
climbingFool wrote: Tue Sep 20, 2022 11:09 pm My wife and I are both about 63.5 years old.
I looked into taking social security at 62 previously but decided to delay and do large conversions to ROTH.
With your apparently large assets in tax-deferred, this was likely a great decision. (By the way, “Roth” is not an acronym. It is spelled with only the first letter capitalized, in honor of Senator William Roth Jr who sponsored legislation to create Roth IRAs.)
We have been doing very large conversions the last couple years and decent size conversions earlier.
We had planned to scale back considerably on conversions this year to avoid too high Medicare costs that are based on income. I know we'll end up paying those higher Medicare costs once RMD's commence on the non ROTH money we have left. But now is a sure thing and the future isn't.
I’m glad you had a plan. If you were to start converting now, would you be converting as much as you currently do? Do you convert MORE than the annual growth in tax-deferred? If not, the account values are going to be quite large when RMDs take effect.
In this down market I have been starting to consider again if one of us (probably my wife) should take social security now and just invest the money.
You would probably be better off in the long term just continuing doing Roth conversions that are much larger than the SS one of you would receive. Invest the converted amount instead of the SS so your SS can grow, instead of having the tax-deferred continue to grow. And, of course, everything in Roth IRAs should be in stock funds to maximize your future tax-free growth.
It seems intuitively obvious to me that in a highly down market the incentive to start SS early becomes greater - if you invest the money.
It seems intuitively obvious to me that in a highly down market the incentive to do Roth conversions becomes greater since you can convert more shares for the same taxes paid when the share prices are lower than usual. The more the markets go down, the more you can convert for the same tax hit.

For example, if you have stock funds or ETFs in tax-deferred and they were $100 a share at the beginning of the year but they have since dropped to $50 a share, if you convert them at half price and pay the taxes on the lower amount, when they return to their full value, it is as if you paid half price on the taxes. This assumes you paid the taxes from Taxable money that was not invested (so there are no tax implications in Taxable).
. . . It seems a shame to me to let this investment opportunity go by.
I agree. It’s not very often we see extended bull markets like this.

ClimbingFool, as I was reading the original post above, I started wondering if you really understand the benefit of doing Roth conversions in early retirement. Most of us see this as trying to “level out” our Taxable Income each year from retirement to the time we die. Level income from year to year implies level Income Taxes (unless tax laws change). We find that it is usually better to have level income (and taxes) each year than to have a few years of lower income in early retirement followed by higher income (and taxes) once RMDs and SS start. Is that how you originally planned your Roth conversions? Did you ever estimate the value of your tax/deferred accounts at age 72 and the corresponding RMDs that would then begin? (Estimate RMDs at 4% of the age 72 projected tax-deferred account value.)
Celia:
As to continuing to do large conversions to Roth instead of taking social security early one needs the cash flow to do that. We had planned on using cash in the early years and then company stock options which I have expiring for 6 years starting in a little over 1 year. Those options have now dropped considerably in value. We are also doing several unexpected house upgrades which take more cash flow than expected. With a down market I wouldn't want to fund conversions by selling stock and that is perhaps also questionable in an up market.
I'm sure a Boglehead would argue I should have set safer investments aside to fund the conversions but that goes against my nature of always being aggressive - no regrets on that end for me.
We always knew we would barely make a dent in the % converted of IRA/401k and that is the case even with our gross income much higher the last few years than while working (due to the conversions).
Our goal in doing the conversions was to minimize RMD's as much as possible and also minimize taxes upon our death as much as possible.
We certainly are loving life - lots of trips/fun including international and have no cash flow issues. These are first world discussions.
tj
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Re: Take social security early in down market and invest?

Post by tj »

climbingFool wrote: Wed Sep 21, 2022 11:36 am
celia wrote: Wed Sep 21, 2022 2:49 am
climbingFool wrote: Tue Sep 20, 2022 11:09 pm My wife and I are both about 63.5 years old.
I looked into taking social security at 62 previously but decided to delay and do large conversions to ROTH.
With your apparently large assets in tax-deferred, this was likely a great decision. (By the way, “Roth” is not an acronym. It is spelled with only the first letter capitalized, in honor of Senator William Roth Jr who sponsored legislation to create Roth IRAs.)
We have been doing very large conversions the last couple years and decent size conversions earlier.
We had planned to scale back considerably on conversions this year to avoid too high Medicare costs that are based on income. I know we'll end up paying those higher Medicare costs once RMD's commence on the non ROTH money we have left. But now is a sure thing and the future isn't.
I’m glad you had a plan. If you were to start converting now, would you be converting as much as you currently do? Do you convert MORE than the annual growth in tax-deferred? If not, the account values are going to be quite large when RMDs take effect.
In this down market I have been starting to consider again if one of us (probably my wife) should take social security now and just invest the money.
You would probably be better off in the long term just continuing doing Roth conversions that are much larger than the SS one of you would receive. Invest the converted amount instead of the SS so your SS can grow, instead of having the tax-deferred continue to grow. And, of course, everything in Roth IRAs should be in stock funds to maximize your future tax-free growth.
It seems intuitively obvious to me that in a highly down market the incentive to start SS early becomes greater - if you invest the money.
It seems intuitively obvious to me that in a highly down market the incentive to do Roth conversions becomes greater since you can convert more shares for the same taxes paid when the share prices are lower than usual. The more the markets go down, the more you can convert for the same tax hit.

For example, if you have stock funds or ETFs in tax-deferred and they were $100 a share at the beginning of the year but they have since dropped to $50 a share, if you convert them at half price and pay the taxes on the lower amount, when they return to their full value, it is as if you paid half price on the taxes. This assumes you paid the taxes from Taxable money that was not invested (so there are no tax implications in Taxable).
. . . It seems a shame to me to let this investment opportunity go by.
I agree. It’s not very often we see extended bull markets like this.

ClimbingFool, as I was reading the original post above, I started wondering if you really understand the benefit of doing Roth conversions in early retirement. Most of us see this as trying to “level out” our Taxable Income each year from retirement to the time we die. Level income from year to year implies level Income Taxes (unless tax laws change). We find that it is usually better to have level income (and taxes) each year than to have a few years of lower income in early retirement followed by higher income (and taxes) once RMDs and SS start. Is that how you originally planned your Roth conversions? Did you ever estimate the value of your tax/deferred accounts at age 72 and the corresponding RMDs that would then begin? (Estimate RMDs at 4% of the age 72 projected tax-deferred account value.)
Celia:
As to continuing to do large conversions to Roth instead of taking social security early one needs the cash flow to do that. We had planned on using cash in the early years and then company stock options which I have expiring for 6 years starting in a little over 1 year. Those options have now dropped considerably in value. We are also doing several unexpected house upgrades which take more cash flow than expected. With a down market I wouldn't want to fund conversions by selling stock and that is perhaps also questionable in an up market.
I'm sure a Boglehead would argue I should have set safer investments aside to fund the conversions but that goes against my nature of always being aggressive - no regrets on that end for me.
We always knew we would barely make a dent in the % converted of IRA/401k and that is the case even with our gross income much higher the last few years than while working (due to the conversions).
Our goal in doing the conversions was to minimize RMD's as much as possible and also minimize taxes upon our death as much as possible.
We certainly are loving life - lots of trips/fun including international and have no cash flow issues. These are first world discussions.
Why don't you just pay tax withholdings from the IRA? This will reduce the balance and thus reduce future RMDs.
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climbingFool
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Re: Take social security early in down market and invest?

Post by climbingFool »

tj wrote: Wed Sep 21, 2022 11:42 am
climbingFool wrote: Wed Sep 21, 2022 11:36 am
celia wrote: Wed Sep 21, 2022 2:49 am
climbingFool wrote: Tue Sep 20, 2022 11:09 pm My wife and I are both about 63.5 years old.
I looked into taking social security at 62 previously but decided to delay and do large conversions to ROTH.
With your apparently large assets in tax-deferred, this was likely a great decision. (By the way, “Roth” is not an acronym. It is spelled with only the first letter capitalized, in honor of Senator William Roth Jr who sponsored legislation to create Roth IRAs.)
We have been doing very large conversions the last couple years and decent size conversions earlier.
We had planned to scale back considerably on conversions this year to avoid too high Medicare costs that are based on income. I know we'll end up paying those higher Medicare costs once RMD's commence on the non ROTH money we have left. But now is a sure thing and the future isn't.
I’m glad you had a plan. If you were to start converting now, would you be converting as much as you currently do? Do you convert MORE than the annual growth in tax-deferred? If not, the account values are going to be quite large when RMDs take effect.
In this down market I have been starting to consider again if one of us (probably my wife) should take social security now and just invest the money.
You would probably be better off in the long term just continuing doing Roth conversions that are much larger than the SS one of you would receive. Invest the converted amount instead of the SS so your SS can grow, instead of having the tax-deferred continue to grow. And, of course, everything in Roth IRAs should be in stock funds to maximize your future tax-free growth.
It seems intuitively obvious to me that in a highly down market the incentive to start SS early becomes greater - if you invest the money.
It seems intuitively obvious to me that in a highly down market the incentive to do Roth conversions becomes greater since you can convert more shares for the same taxes paid when the share prices are lower than usual. The more the markets go down, the more you can convert for the same tax hit.

For example, if you have stock funds or ETFs in tax-deferred and they were $100 a share at the beginning of the year but they have since dropped to $50 a share, if you convert them at half price and pay the taxes on the lower amount, when they return to their full value, it is as if you paid half price on the taxes. This assumes you paid the taxes from Taxable money that was not invested (so there are no tax implications in Taxable).
. . . It seems a shame to me to let this investment opportunity go by.
I agree. It’s not very often we see extended bull markets like this.

ClimbingFool, as I was reading the original post above, I started wondering if you really understand the benefit of doing Roth conversions in early retirement. Most of us see this as trying to “level out” our Taxable Income each year from retirement to the time we die. Level income from year to year implies level Income Taxes (unless tax laws change). We find that it is usually better to have level income (and taxes) each year than to have a few years of lower income in early retirement followed by higher income (and taxes) once RMDs and SS start. Is that how you originally planned your Roth conversions? Did you ever estimate the value of your tax/deferred accounts at age 72 and the corresponding RMDs that would then begin? (Estimate RMDs at 4% of the age 72 projected tax-deferred account value.)
Celia:
As to continuing to do large conversions to Roth instead of taking social security early one needs the cash flow to do that. We had planned on using cash in the early years and then company stock options which I have expiring for 6 years starting in a little over 1 year. Those options have now dropped considerably in value. We are also doing several unexpected house upgrades which take more cash flow than expected. With a down market I wouldn't want to fund conversions by selling stock and that is perhaps also questionable in an up market.
I'm sure a Boglehead would argue I should have set safer investments aside to fund the conversions but that goes against my nature of always being aggressive - no regrets on that end for me.
We always knew we would barely make a dent in the % converted of IRA/401k and that is the case even with our gross income much higher the last few years than while working (due to the conversions).
Our goal in doing the conversions was to minimize RMD's as much as possible and also minimize taxes upon our death as much as possible.
We certainly are loving life - lots of trips/fun including international and have no cash flow issues. These are first world discussions.
Why don't you just pay tax withholdings from the IRA? This will reduce the balance and thus reduce future RMDs.
TJ
The research I have done says ideally Roth conversions should not be funded by doing an IRA withdrawal: see below and other articles say the same. https://www.kiplinger.com/retirement/re ... conversion
In a down market it is a doublewhammy - I like to sell stocks at the highs, not the lows. Of course that is somewhat offset by the advantages of doing the conversion when the market is low.
It will be odd being forced to take RMD's in down market years.
My goal is to minimize RMD's but not by "losing" money on purpose.
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David Jay
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Re: Take social security early in down market and invest?

Post by David Jay »

As a married couple, it is almost always the better strategy for the higher earner to defer SS. This is because the higher benefit of the two earners will become the survivor's benefit, regardless of which spouse passes first. So the calculation for the lower earner is "first-to-pass" and the high earner is "second-to-pass". Most calculators such as http://opensocialsecurity.com will recommend that the higher wage earner defer until age 70.

It may make sense for the lower earner to file early to provide some cash flow and reduce withdrawals from the portfolio. But pretty much "never" for the higher earner.
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SGM
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Re: Take social security early in down market and invest?

Post by SGM »

We converted all our tax deferred accounts to Roth accounts over a period of 7 years when I had little or no earned income. We did no expensive home improvements until after we were both taking our delayed until after all the conversions were completed.

All our taxes were paid out of our taxable accounts. I would not have done conversions if I had to pay the taxes from the converted IRA or 401k.

One of my reasons for delaying my SS until 70 was that DW has excellent health and a family history of extreme longevity. When we both reached full retirement age file and suspend was still allowed. DW took a spousal benefit and then was able to change to her own benefit at age 70. That strategy is no longer available.
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celia
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Re: Take social security early in down market and invest?

Post by celia »

climbingFool wrote: Tue Sep 20, 2022 11:09 pm But now is a sure thing and the future isn't.
We agree on something!!!

Have you considered that when your DW takes RMDs or withdraws to Taxable in the years after you die, she will likely be paying more in taxes because the space in the Single tax brackets is half as much as the space in the MFJ tax brackets? But she will still have to take the same RMDs as if both of you were alive.

But not only will her tax bracket likely increase, but the IRMAA brackets are smaller for Singles too.

And don’t forget that the tax brackets are scheduled to reset to 2017 rates come 2026, unless Congress decides something else. We are currently in historically low tax brackets. When they change some day, although we can’t speculate here on future tax law, you can make your own guess on which direction they will move.


I see taxes as part of my living expenses. When I see a bigger expense coming up, we can tighten our belts and start saving for the new expense (increased taxes, in your case). But I don’t see the taxes being increased here. Rather, they are temporarily decreased since the share values are now less.

So, I would take the sure thing now, especially with the current market lows instead of waiting for the future.
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climbingFool
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Re: Take social security early in down market and invest?

Post by climbingFool »

celia wrote: Thu Sep 22, 2022 3:39 am
climbingFool wrote: Tue Sep 20, 2022 11:09 pm But now is a sure thing and the future isn't.
We agree on something!!!

Have you considered that when your DW takes RMDs or withdraws to Taxable in the years after you die, she will likely be paying more in taxes because the space in the Single tax brackets is half as much as the space in the MFJ tax brackets? But she will still have to take the same RMDs as if both of you were alive.

But not only will her tax bracket likely increase, but the IRMAA brackets are smaller for Singles too.

And don’t forget that the tax brackets are scheduled to reset to 2017 rates come 2026, unless Congress decides something else. We are currently in historically low tax brackets. When they change some day, although we can’t speculate here on future tax law, you can make your own guess on which direction they will move.


I see taxes as part of my living expenses. When I see a bigger expense coming up, we can tighten our belts and start saving for the new expense (increased taxes, in your case). But I don’t see the taxes being increased here. Rather, they are temporarily decreased since the share values are now less.

So, I would take the sure thing now, especially with the current market lows instead of waiting for the future.
Celia
You don't need to convince me of the benefits of doing Roth conversions, especially in a low market. I converted quite a bit more this year and last year than I ever received while working. This year since growth stocks were down way more than the ETF's I converted all growth stocks that I believed in the most for future growth - converting nothing speculative. I timed the conversions for low market days and even took advantage of some big intraday swings to convert at the lowest point in the day.
In 2020 I did a small conversion in early March and then perfectly timed a very large conversion on the lowest market day of the year.
In our case we just see there is no path to ever being able to convert all of it or even get close. We really have barely made a dent despite converting for years. My wife gets a little tired of seeing so many dollars going to taxes.
In reality no matter what we do we are set for life and have no money issues.
But aside from that out of curiosity what would you think of starting my wife on social security and using that to fund more conversions instead of investing in new ETF's? I also have a large amount of money in taxable accounts I could use although since I am an aggressive investor that is mostly down from the highs.
Of course if we continue doing large conversions we would pay up to $8160 or so more per year in Medicare. It seemed convenient to run out of funds to do conversion about the same time we pay a penalty in medical care for higher income.
I have to admit also a little part of wanting to start SS early for one of us is I don't trust that they won't find a way to tax it more or somehow make it less valuable in the future.
MathWizard
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Re: Take social security early in down market and invest?

Post by MathWizard »

theorist wrote: Tue Sep 20, 2022 11:20 pm The guaranteed increase in benefit per year between 62 and full retirement age, visible e.g. here

https://www.ssa.gov/benefits/retirement ... ction.html

seems to be pretty reasonable. I gather you get 8% per year between FRA and 70, and it looks like more like 5% extra per year between 62 and FRA.

I think a guaranteed return of 5% is pretty good. (This doesn’t include the inflation adjustments.) if you don’t need the money I’d be inclined to wait to claim, and take the guaranteed win.
It is 5% of PIA to the 70% of PIA delaying from 62 to 63.
That is a 7.14% increase.

I looks at it as buying an inflation adjusted annuity with the amount of money I would have gotten.

This is more of longevity insurance, since break-even in somewhere around age 80 for any of the delays.
Delaying is most advantageous for
those whose health&genetics suggest a long life
the higher earning person of a married couple, assuming roughly the same age,
a single woman in good health (woman tend to live longer on average)

A single man will lose on average, but individual are not statistics.
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calmaniac
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Re: Take social security early in down market and invest?

Post by calmaniac »

climbingFool wrote: Tue Sep 20, 2022 11:09 pm I have always been a very aggressive investor being 100 % in stocks (no bonds) and buying in down markets. We always legally maxed out our 401k and in down market years we maxed out IRA's also. It seems a shame to me to let this investment opportunity go by.
We would just stick it all in ETF's as we have plenty of money in individual stocks.
Thoughts?
First of all, as long as the higher earner (or one of you, since your SS PIA is similar) waits (ideally to 70), it seems reasonable for the other spouse to take earlier, as per your individual assessment. Whoever is the survivor will reap that higher SS benefit for the rest of their life.

Second, worth pointing out the need to start shifting from an accumulation to distribution mindset. Your post indicated you have always been 100% equities. Is that still the case? At some point you need to start thinking about moving to safer assets, such as bonds. Deciding between waiting on SS or taking the money sooner and investing in equities is a false comparison. SS is a safe asset, whereas over a short period the equity market is much less predictable.
≈63yo. AA 70/30: 30% TSM, 16% value (VIOV/VFVA/AVUV), 16% foreign LC, 8%emerging, 30% GFund/VBTIX. Fed pensions now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses. What me worry?
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Re: Take social security early in down market and invest?

Post by climbingFool »

calmaniac wrote: Thu Sep 22, 2022 3:49 pm
climbingFool wrote: Tue Sep 20, 2022 11:09 pm I have always been a very aggressive investor being 100 % in stocks (no bonds) and buying in down markets. We always legally maxed out our 401k and in down market years we maxed out IRA's also. It seems a shame to me to let this investment opportunity go by.
We would just stick it all in ETF's as we have plenty of money in individual stocks.
Thoughts?
First of all, as long as the higher earner (or one of you, since your SS PIA is similar) waits (ideally to 70), it seems reasonable for the other spouse to take earlier, as per your individual assessment. Whoever is the survivor will reap that higher SS benefit for the rest of their life.

Second, worth pointing out the need to start shifting from an accumulation to distribution mindset. Your post indicated you have always been 100% equities. Is that still the case? At some point you need to start thinking about moving to safer assets, such as bonds. Deciding between waiting on SS or taking the money sooner and investing in equities is a false comparison. SS is a safe asset, whereas over a short period the equity market is much less predictable.
Calmaniac
The way I look at it is that money is my kids now as I won't need much of it and how would they want me to invest it?
In actuality my kids are very aggressive investors and have done quite well so I know how they think.
So yes I have no bonds even at my age. At some point an aggressive investor who saves a lot but isn't stupid aggressive accumulates enough that any market downturn just doesn't matter. I have the luxury of a good pension which allows me to have that mindset.
I was just talking with a wealthy friend the other day when out mountain biking. I asked him about social security and his wife started taking it at 62. He also said he treats his money as his kids money and that when he buys something expensive he calls them up and thanks them. I found that humorous and ironic as I had similar thoughts.
UNCHEEL
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Re: Take social security early in down market and invest?

Post by UNCHEEL »

It sounds like you have a well-considered plan. There are definitely times & circumstances where putting off SS until it maximizes at 70 comes out ahead. But, I'm really tired of people who simplistically consider the higher SS payments as if they're a windfall. It's a higher payment to compensate you for deferring your payments. From an actuarial standpoint, it's neutral. Yes, if you live past 80, you might come out ahead to wait. But, if you die at 69, you get nothing. Nothing. And, as you've considered, the payments you take early can be invested. Whether that comes out ahead or behind, depends on how the market does. Think the market will rise? Think you can invest to beat the implicit SS assumption? Can you afford to be wrong? If you're good on those, have at it. (It's what I did.)

If you will NEED SS to live on in your later years, and if your family history suggests unusual longevity, then you might want to reconsider.
If one is inclined to wait, the advice above to let the lower earner start early and only defer the higher earner, generally makes sense.
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calmaniac
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Re: Take social security early in down market and invest?

Post by calmaniac »

climbingFool wrote: Thu Sep 22, 2022 8:06 pm Calmaniac
The way I look at it is that money is my kids now as I won't need much of it and how would they want me to invest it?
In actuality my kids are very aggressive investors and have done quite well so I know how they think.
So yes I have no bonds even at my age. At some point an aggressive investor who saves a lot but isn't stupid aggressive accumulates enough that any market downturn just doesn't matter. I have the luxury of a good pension which allows me to have that mindset.
I was just talking with a wealthy friend the other day when out mountain biking. I asked him about social security and his wife started taking it at 62. He also said he treats his money as his kids money and that when he buys something expensive he calls them up and thanks them. I found that humorous and ironic as I had similar thoughts.
climbingFool, I have a good sense of where you are coming from and I appreciate that we oversavers with pensions, etc have addressed almost all of the financial risk in retirement. Other than a meltdown of Western Civilization, there are very few scenarios that we could not weather financially. We all have different risk benefit set points at which we find comfort. My natural proclivity is all equities.

That said, I try not to be too smart for my own good and have adjusted to 70/30, although planing a glide path to 80/20 in the coming years. YMMV.

I started an "encore career" at age 59 making 50% more than my "real" career. Similar to you, I figure I'm working on my kids retirement at this point. Planning on pulling the retirement ripcord in 2023.

It sounds like you have worked hard, saved well, and know your own comfort zone. You have thoughtfully considered the options, picked a path that makes sense to you and has a very high probability of success

BTW, great biking weather these days! :sharebeer

Manically yours,

calmaniac
≈63yo. AA 70/30: 30% TSM, 16% value (VIOV/VFVA/AVUV), 16% foreign LC, 8%emerging, 30% GFund/VBTIX. Fed pensions now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses. What me worry?
BernardShakey
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Re: Take social security early in down market and invest?

Post by BernardShakey »

climbingFool wrote: Thu Sep 22, 2022 2:36 pm
celia wrote: Thu Sep 22, 2022 3:39 am
climbingFool wrote: Tue Sep 20, 2022 11:09 pm But now is a sure thing and the future isn't.
We agree on something!!!

Have you considered that when your DW takes RMDs or withdraws to Taxable in the years after you die, she will likely be paying more in taxes because the space in the Single tax brackets is half as much as the space in the MFJ tax brackets? But she will still have to take the same RMDs as if both of you were alive.

But not only will her tax bracket likely increase, but the IRMAA brackets are smaller for Singles too.

And don’t forget that the tax brackets are scheduled to reset to 2017 rates come 2026, unless Congress decides something else. We are currently in historically low tax brackets. When they change some day, although we can’t speculate here on future tax law, you can make your own guess on which direction they will move.


I see taxes as part of my living expenses. When I see a bigger expense coming up, we can tighten our belts and start saving for the new expense (increased taxes, in your case). But I don’t see the taxes being increased here. Rather, they are temporarily decreased since the share values are now less.

So, I would take the sure thing now, especially with the current market lows instead of waiting for the future.
Celia
You don't need to convince me of the benefits of doing Roth conversions, especially in a low market. I converted quite a bit more this year and last year than I ever received while working. This year since growth stocks were down way more than the ETF's I converted all growth stocks that I believed in the most for future growth - converting nothing speculative. I timed the conversions for low market days and even took advantage of some big intraday swings to convert at the lowest point in the day.
In 2020 I did a small conversion in early March and then perfectly timed a very large conversion on the lowest market day of the year.
In our case we just see there is no path to ever being able to convert all of it or even get close. We really have barely made a dent despite converting for years. My wife gets a little tired of seeing so many dollars going to taxes.
In reality no matter what we do we are set for life and have no money issues.
But aside from that out of curiosity what would you think of starting my wife on social security and using that to fund more conversions instead of investing in new ETF's? I also have a large amount of money in taxable accounts I could use although since I am an aggressive investor that is mostly down from the highs.
Of course if we continue doing large conversions we would pay up to $8160 or so more per year in Medicare. It seemed convenient to run out of funds to do conversion about the same time we pay a penalty in medical care for higher income.
I have to admit also a little part of wanting to start SS early for one of us is I don't trust that they won't find a way to tax it more or somehow make it less valuable in the future.
If you're that well off then, sure, have her take SS now and invest it. It really doesn't matter is the sense I'm getting here.
An important key to investing is having a well-calibrated sense of your future regret.
Exchme
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Re: Take social security early in down market and invest?

Post by Exchme »

In our situation, the math, after factoring in our intended Roth Conversions, slightly favors my wife (the lower earner) claiming SS now, but it's a very close call. With somewhat more optimistic assumptions about returns, the math reverses so it's a net negative as we would get bumped up to a higher tax bracket later in life. So for us, I would say the decision on her claiming should be made on other grounds.

The elephant in the room though is that since you are planning for your kids and are very well off, you need to think about estate taxes. The estate exemption will be cut in half in 2026, to $6.03M per individual, $12.06M for the two of you. If you have so much in tax deferred that you are not making a dent with Roth Conversions, that could very well bite. Your kids would get stuck with estate taxes and still owe taxes on RMDs from your IRAs. That would be an overwhelming reason to do Roth Conversions.

In any case, with substantial assets and big taxes, you would probably be well served to hire some tax and estate planning done.
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celia
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Re: Take social security early in down market and invest?

Post by celia »

climbingFool wrote: Thu Sep 22, 2022 2:36 pm In our case we just see there is no path to ever being able to convert all of it or even get close. We really have barely made a dent despite converting for years.
One thing you can do to slow down the growth is to hold some bonds in tax-deferred. Another option is to do QCDs after you turn 70.5.
My wife gets a little tired of seeing so many dollars going to taxes.
She probably doesn’t understand what the taxes will be after RMDs start if you DONT convert now.
But aside from that out of curiosity what would you think of starting my wife on social security and using that to fund more conversions instead of investing in new ETF's?
Using SS to pay the taxes is fine. But keep in mind that 85% of the SS will be taxed. So you need to save some room in your tax bracket for that.

But the most important thing might be that she won’t feel she (or both of you) are receiving SS if it is all used to pay taxes. She should acknowledge and agree that this is how it will be spent and that money is fungible.
WillRetire
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Re: Take social security early in down market and invest?

Post by WillRetire »

It is an intriguing idea. Especially if you know how long the down market will last, which of course you don't. And so it becomes a market timing thing, which I'm not opposed to in principle but that approach has its own risks. How would you feel if the market continued downwards for 3 more years after you started collecting? 5 more years? If it were me, I'd be upset that I started SS too early and plowed the proceeds into a declining market.

I would rather keep these things separate: safe, reliable income sources, and investments. I manage investments as such. Safe reliable income sources are there to meet basic needs.
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Re: Take social security early in down market and invest?

Post by nguy44 »

In our circumstances, because of the vast difference between my wife's SS and the spousal benefit she would get when I file, my wife took her SS early a few months after turning 62. It was also partly "emotional" as she wanted to start getting hers. The SS calculators like opensocialsecurity also indicated taking hers early and mine at 70 would be fine. Since we do not need hers we have been saving/investing it.

Going into retirement I planned to take SS not sooner than 3 years after I retired, based on our financial circumstances. We have had more "positive" surprises than negative, the net of which is we can afford to wait until I turn 70 to take mine. I will wait as long as possible to maximize the survivors benefit. Also, her SS amount barely impacts my Roth conversion plans, it still leaves room to complete our IRA (and a little of my 401k) conversions before age 72.

I am not as aggressive in my equities allocation as the OP is, but I see no issue with doing this. It is more of a "choice" vs. "a potential mistake" in my view. I have seem some financial advisors make the case for taking SS as soon as possible *IF* you can be disciplined enough to invest the proceeds and have a long time window (10+ years) for the investment.
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climbingFool
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Re: Take social security early in down market and invest?

Post by climbingFool »

WillRetire wrote: Fri Sep 23, 2022 9:25 am It is an intriguing idea. Especially if you know how long the down market will last, which of course you don't. And so it becomes a market timing thing, which I'm not opposed to in principle but that approach has its own risks. How would you feel if the market continued downwards for 3 more years after you started collecting? 5 more years? If it were me, I'd be upset that I started SS too early and plowed the proceeds into a declining market.

I would rather keep these things separate: safe, reliable income sources, and investments. I manage investments as such. Safe reliable income sources are there to meet basic needs.
WillRetire
I think a logical approach to investing in a down market is to buy proportional to how much the market is down. One never knows the bottom but the more it is down the less risk there is. I heard this morning the Nasdaq is down 30 % YTD although generally I gauge more by the S&P 500.
I have noticed right before the market starts heading up typically the growth stocks go up first. That is sort of a leading indicator.
I don't time the market by going in and out but I do time stock purchases.
I dollar cost averaged across the lowest week in 2020 (as you recall a very down year in March) making many buys.
In actuality if we start social security early for my wife it will be in January of 2023 so personally I hope the market keeps going down.
I already filled our "normal" tax bracket and the next higher one for 2022 with conversions and don't want to go 2 brackets higher.
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Re: Take social security early in down market and invest?

Post by JDave »

If you can correctly time the market 51% of the time, investment firms will beg to hire you at $50,000,000/per year, and your Social Security will be irrelevant.
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Re: Take social security early in down market and invest?

Post by climbingFool »

JDave wrote: Fri Sep 23, 2022 12:15 pm If you can correctly time the market 51% of the time, investment firms will beg to hire you at $50,000,000/per year, and your Social Security will be irrelevant.
JDave
I actually make the points about timing partially because I know that members of this forum are so timing averse and I disagree.
Certain things make sense to time.
A good argument can be made for dollar cost averaging into the market on a regular basis (and I always did in 401k and some regular stock purchases).
I believe an equally good argument can be made that when the market is way down you should be opportunistic and use up extra cash - the more it is down the more I bought.
I maxed out my 401k all years and also an IRA in down years. The IRA timing I think makes sense.
On July 27 2020 I actually posted on this forum about the merits of doing a 401k conversion when the market is down and got some pushback because that is "timing" and other incorrect reasoning. Conversions make more sense in a down market. In this thread now everyone agrees with that.
When I have to take RMD's I will try to time them when the market is high (if that's allowed) - again it makes sense to sell when stocks are high.
One obvious case where timing is bad is trying to jump in and out of the stock market but not all timing is bad.
I don't spend too much time on this forum but when I am mulling over something financial I like to hear other viewpoints. I just disagree with the concept that all timing is bad.
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Re: Take social security early in down market and invest?

Post by smitcat »

climbingFool wrote: Fri Sep 23, 2022 4:11 pm
JDave wrote: Fri Sep 23, 2022 12:15 pm If you can correctly time the market 51% of the time, investment firms will beg to hire you at $50,000,000/per year, and your Social Security will be irrelevant.
JDave
I actually make the points about timing partially because I know that members of this forum are so timing averse and I disagree.
Certain things make sense to time.
A good argument can be made for dollar cost averaging into the market on a regular basis (and I always did in 401k and some regular stock purchases).
I believe an equally good argument can be made that when the market is way down you should be opportunistic and use up extra cash - the more it is down the more I bought.
I maxed out my 401k all years and also an IRA in down years. The IRA timing I think makes sense.
On July 27 2020 I actually posted on this forum about the merits of doing a 401k conversion when the market is down and got some pushback because that is "timing" and other incorrect reasoning. Conversions make more sense in a down market. In this thread now everyone agrees with that.
When I have to take RMD's I will try to time them when the market is high (if that's allowed) - again it makes sense to sell when stocks are high.
One obvious case where timing is bad is trying to jump in and out of the stock market but not all timing is bad.
I don't spend too much time on this forum but when I am mulling over something financial I like to hear other viewpoints. I just disagree with the concept that all timing is bad.
"Conversions make more sense in a down market. In this thread now everyone agrees with that.
When I have to take RMD's I will try to time them when the market is high (if that's allowed) - again it makes sense to sell when stocks are high."

Preferring to make Roth conversions when the market is low and preferring to take RMD's when the market is high appears to be opposing strategies.
If one is lucky and flexible and wealthy enough to time either of these, they would share the same strategy.
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Re: Take social security early in down market and invest?

Post by climbingFool »

smitcat wrote: Sat Sep 24, 2022 6:46 am
climbingFool wrote: Fri Sep 23, 2022 4:11 pm
JDave wrote: Fri Sep 23, 2022 12:15 pm If you can correctly time the market 51% of the time, investment firms will beg to hire you at $50,000,000/per year, and your Social Security will be irrelevant.
JDave
I actually make the points about timing partially because I know that members of this forum are so timing averse and I disagree.
Certain things make sense to time.
A good argument can be made for dollar cost averaging into the market on a regular basis (and I always did in 401k and some regular stock purchases).
I believe an equally good argument can be made that when the market is way down you should be opportunistic and use up extra cash - the more it is down the more I bought.
I maxed out my 401k all years and also an IRA in down years. The IRA timing I think makes sense.
On July 27 2020 I actually posted on this forum about the merits of doing a 401k conversion when the market is down and got some pushback because that is "timing" and other incorrect reasoning. Conversions make more sense in a down market. In this thread now everyone agrees with that.
When I have to take RMD's I will try to time them when the market is high (if that's allowed) - again it makes sense to sell when stocks are high.
One obvious case where timing is bad is trying to jump in and out of the stock market but not all timing is bad.
I don't spend too much time on this forum but when I am mulling over something financial I like to hear other viewpoints. I just disagree with the concept that all timing is bad.
"Conversions make more sense in a down market. In this thread now everyone agrees with that.
When I have to take RMD's I will try to time them when the market is high (if that's allowed) - again it makes sense to sell when stocks are high."

Preferring to make Roth conversions when the market is low and preferring to take RMD's when the market is high appears to be opposing strategies.
If one is lucky and flexible and wealthy enough to time either of these, they would share the same strategy.
smitcat:
Doing conversions when the market is low appears to now be in agreement as the best strategy.

I haven't studied RMD's much yet but it seems obvious to me you want to sell stocks high, especially in a forced sell. Perhaps that would lead to more taxes forced upon you but upon first blush seems to be the avenue to transfer the most wealth to your heirs.
There have been many studies that show those who retire just as the market crashes are screwed if they have no safe money to live off of until the market recovers. In that case the forced withdrawals from a down market portfolio to live on can really damage their portfolio for long term. RMD's should be the same.
Am I missing something?
https://www.schwab.com/learn/story/mana ... own-market
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jeffyscott
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Re: Take social security early in down market and invest?

Post by jeffyscott »

^RMD doesn't require selling. The stocks may simply be moved from an IRA to a taxable account.
And so it goes, And so it goes, And so it goes, And so it goes, But where it's goin' no one knows
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climbingFool
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Re: Take social security early in down market and invest?

Post by climbingFool »

This may be a repost - 2nd try.

I thought about it more and doing conversions when the market is low and taking RMD's when the market is high actually have very similar logical arguments.
You do a conversion when the market is low so that for the same tax dollars you transfer a larger percentage of your IRA to Roth.
You take an RMD when the market is high so that for the same forced conversion dollars (I believe set on Dec. 31 from the previous year?) you actually are forced to sell a lower % of your portfolio and leave the rest to grow.

This doesn't take into account the possibility of immediately reinvesting the RMD.
So the two concepts have similar but opposite explanations.
smitcat
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Re: Take social security early in down market and invest?

Post by smitcat »

climbingFool wrote: Sat Sep 24, 2022 1:41 pm This may be a repost - 2nd try.

I thought about it more and doing conversions when the market is low and taking RMD's when the market is high actually have very similar logical arguments.
You do a conversion when the market is low so that for the same tax dollars you transfer a larger percentage of your IRA to Roth.
You take an RMD when the market is high so that for the same forced conversion dollars (I believe set on Dec. 31 from the previous year?) you actually are forced to sell a lower % of your portfolio and leave the rest to grow.

This doesn't take into account the possibility of immediately reinvesting the RMD.
So the two concepts have similar but opposite explanations.
"This doesn't take into account the possibility of immediately reinvesting the RMD."
The difference is you are not spending one.
To make a valuable comparison you need to keep both the same.

Long term there are no differences - If you can time the market, and have enough flexibility and wealth the strategies are the same.
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climbingFool
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Re: Take social security early in down market and invest?

Post by climbingFool »

smitcat wrote: Sat Sep 24, 2022 2:02 pm
climbingFool wrote: Sat Sep 24, 2022 1:41 pm This may be a repost - 2nd try.

I thought about it more and doing conversions when the market is low and taking RMD's when the market is high actually have very similar logical arguments.
You do a conversion when the market is low so that for the same tax dollars you transfer a larger percentage of your IRA to Roth.
You take an RMD when the market is high so that for the same forced conversion dollars (I believe set on Dec. 31 from the previous year?) you actually are forced to sell a lower % of your portfolio and leave the rest to grow.

This doesn't take into account the possibility of immediately reinvesting the RMD.
So the two concepts have similar but opposite explanations.
"This doesn't take into account the possibility of immediately reinvesting the RMD."
The difference is you are not spending one.
To make a valuable comparison you need to keep both the same.

Long term there are no differences - If you can time the market, and have enough flexibility and wealth the strategies are the same.
Thanks for forcing the issue smitcat
As I said I hadn't really studied the RMD's much.
I did find this thread that discusses your point:viewtopic.php?t=369276
So does that mean I can "get away" with staying 100 % in stocks even at 72?
I'll continue to study. If one doesn't need the money and are reinvesting it sounds like down markets are actually good from a forced RMD point of view?
A quote from that thread:
"Since this money will be immediately reinvested into the market in a taxable account, take the RMD while the market is down. (Silverado upthread makes the same point in his 8:43am post)

You will remove more shares from the TIRA this way, lowering future RMDs at no cost to you. SInce OP doesn't need the TIRA RMDs to live on, lowering future RMDs & draining the TIRA faster is a plus.
It's the rough equivalent of doing a Roth Conversion when the market is down- same principle: transfer more shares for the same amount of money."
michaeljc70
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Re: Take social security early in down market and invest?

Post by michaeljc70 »

In your situation, I wouldn't take SS early just because the market is down. Is the amount of potential gains from the SS invested while the market is "low" for the next xx months really going to make a difference in your life? It sounds like you have a lot of savings and a pension so this probably won't move the needle. On the other hand, if you take the SS now I don't that that is terrible either. Either way probably won't make much of a difference for you.
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Re: Take social security early in down market and invest?

Post by rgs92 »

Taking SS early is the opposite of what should be done because the downturn shows that both stocks AND bonds are volatile and also shows the high value of a secure, non-volatile, inflation-adjusted income like social security.

And the most common purpose of a retirement portfolio is steady income, especially one that maintains purchasing power.
smitcat
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Re: Take social security early in down market and invest?

Post by smitcat »

climbingFool wrote: Sat Sep 24, 2022 9:11 pm
smitcat wrote: Sat Sep 24, 2022 2:02 pm
climbingFool wrote: Sat Sep 24, 2022 1:41 pm This may be a repost - 2nd try.

I thought about it more and doing conversions when the market is low and taking RMD's when the market is high actually have very similar logical arguments.
You do a conversion when the market is low so that for the same tax dollars you transfer a larger percentage of your IRA to Roth.
You take an RMD when the market is high so that for the same forced conversion dollars (I believe set on Dec. 31 from the previous year?) you actually are forced to sell a lower % of your portfolio and leave the rest to grow.

This doesn't take into account the possibility of immediately reinvesting the RMD.
So the two concepts have similar but opposite explanations.
"This doesn't take into account the possibility of immediately reinvesting the RMD."
The difference is you are not spending one.
To make a valuable comparison you need to keep both the same.

Long term there are no differences - If you can time the market, and have enough flexibility and wealth the strategies are the same.
Thanks for forcing the issue smitcat
As I said I hadn't really studied the RMD's much.
I did find this thread that discusses your point:viewtopic.php?t=369276
So does that mean I can "get away" with staying 100 % in stocks even at 72?
I'll continue to study. If one doesn't need the money and are reinvesting it sounds like down markets are actually good from a forced RMD point of view?
A quote from that thread:
"Since this money will be immediately reinvested into the market in a taxable account, take the RMD while the market is down. (Silverado upthread makes the same point in his 8:43am post)

You will remove more shares from the TIRA this way, lowering future RMDs at no cost to you. SInce OP doesn't need the TIRA RMDs to live on, lowering future RMDs & draining the TIRA faster is a plus.
It's the rough equivalent of doing a Roth Conversion when the market is down- same principle: transfer more shares for the same amount of money."
"So does that mean I can "get away" with staying 100 % in stocks even at 72?"
This totally depends on what amounts a person is spending vs their total portfolio and also what plans they may have for any leftover funds.
If there are planned 'leftover' funds modeled - some diametrically opposed possibilities include....
1. The funds are marked for charity - then do no Roth conversions and leave larger charitable donations
2. The funds are marked for an heir - depends on their anticipated tax rate but typically making larger Roth conversions may be advised.

As you have pointed out Roth conversions and RMD's both come from the same account with the same rules applying - depending upon the size of all of you accounts, your account breakdown by pretax, after tax, and your total income doing conversions or withdrawals or both are very similar.

"I'll continue to study. If one doesn't need the money and are reinvesting it sounds like down markets are actually good from a forced RMD point of view?"
We answer this question for ourselves by modeling our most likely future scenarios with the RPM(free) and Pralana Gold(paid) tools - both are pretty good at helping to see the possibilities.
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