Turning 62 and SS alternatives

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
restingonmylaurels
Posts: 306
Joined: Tue Apr 14, 2015 11:02 am

Re: Turning 62 and SS alternatives

Post by restingonmylaurels » Wed Feb 12, 2020 12:21 pm

restingonmylaurels wrote:
Wed Feb 12, 2020 11:59 am
22twain wrote:
Wed Feb 12, 2020 11:44 am
restingonmylaurels wrote:
Wed Feb 12, 2020 11:15 am
between using taxable bond fund dividends and taxable bond fund sales
Do you not have any stock funds in your taxable account?

You're going to pay taxes on taxable bond (or stock) fund dividends regardless of whether you spend them or not, so you might as well spend them. Would they cover your expenses until SS starts, or would you also have to sell shares? If you need to sell something, then you have the question of whether to sell from your taxable account or from your TIRA.
I think you are reiterating the point I made above, that because the bond funds will generate interest in any case, selling the bond funds will generate a second taxable event, so best just to use the bond fund dividends if sufficient.
To you second point, if one needed to sell shares because the bond fund dividends were insufficient, I would think it should depend on the marginal income tax rates (t-IRA distribution) vs. LTCG rates (bond fund sale), with some input from the impact of lowering of future RMDs.

User avatar
JoeRetire
Posts: 4712
Joined: Tue Jan 16, 2018 2:44 pm

Re: Turning 62 and SS alternatives

Post by JoeRetire » Wed Feb 12, 2020 12:43 pm

ObliviousInvestor wrote:
Wed Feb 12, 2020 9:20 am
The "super actuarially advantageous to delay" point is the result of the fact that when the higher earner delays, it increases the amount the couple receives as long as either person is still alive. In other words, they're buying a second-to-die joint life annuity, at what was originally intended to be the price of a single life annuity. And given today's life expectancies and interest rates, they're buying a second-to-die joint life annuity at roughly the price of a first-to-die joint life annuity -- which is an even more advantageous price.
Even better - the second-to-die joint life annuity is inflation-protected!
Very Stable Genius

User avatar
ObliviousInvestor
Posts: 3613
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Turning 62 and SS alternatives

Post by ObliviousInvestor » Wed Feb 12, 2020 12:47 pm

JoeRetire wrote:
Wed Feb 12, 2020 12:43 pm
ObliviousInvestor wrote:
Wed Feb 12, 2020 9:20 am
The "super actuarially advantageous to delay" point is the result of the fact that when the higher earner delays, it increases the amount the couple receives as long as either person is still alive. In other words, they're buying a second-to-die joint life annuity, at what was originally intended to be the price of a single life annuity. And given today's life expectancies and interest rates, they're buying a second-to-die joint life annuity at roughly the price of a first-to-die joint life annuity -- which is an even more advantageous price.
Even better - the second-to-die joint life annuity is inflation-protected!
Indeed. (Even more relevant now than it's ever been, given that Principal stopped selling inflation-adjusted annuities several months ago, so they're no longer available at all commercially.)
Mike Piper, author/blogger

User avatar
JoeRetire
Posts: 4712
Joined: Tue Jan 16, 2018 2:44 pm

Re: Turning 62 and SS alternatives

Post by JoeRetire » Wed Feb 12, 2020 12:47 pm

Will do good wrote:
Wed Feb 12, 2020 11:48 am
JoeRetire wrote:
Tue Feb 11, 2020 12:58 pm
suewolf wrote:
Tue Feb 11, 2020 9:35 am
The current system is not sustainable in the long term given current demographics.
Sorry, that is incorrect.

If/when the Social Security trust fund is depleted, whatever money is collected in social security taxes will be paid out in benefits. That is the current system, and it is completely sustainable.
Therefore there's a probability that future benefits will be reduced at some point (35% reduction is current estimate)
Again, no. There is no credible source indicating a 35% reduction.
or the full retirement age will be increased or more SS will be taxed or some combination. To the extent that you want to be grand fathered into the current benefit scheme and avoid potential future benefit reductions, you might opt to start taking SS early.
Sorry, no. The current system has no provision for being "grand fathered in". Anything like that would require changes to the law/current system.
+1, thank you for pointing out the facts.
Sadly, there is still a lot of myth and misunderstanding regarding the status of Social Security.
Very Stable Genius

User avatar
calmaniac
Posts: 202
Joined: Fri Jan 30, 2015 3:32 pm

Re: Turning 62 and SS alternatives

Post by calmaniac » Wed Feb 12, 2020 1:54 pm

restingonmylaurels wrote:
Wed Feb 12, 2020 11:57 am
I am wondering, if both spouses are the same age and only live to a normal life expectancy, does this super actuarially advantageous delay have a big impact, or is only if at least one lives beyond a normal life expectancy?
Michael Kitces had a really nice post on this titled Life Expectancy Assumptions In Retirement Plans – Singles, Couples, And Survivors. The chance of one of the 2 members of the couple living into their late eighties is remarkable.

I find the data compelling for my waiting until 70 for taking SS. That said, wife and I both have pensions to keep us afloat between early sixties through to SS full retirement age. YMMV.

SGM
Posts: 3069
Joined: Wed Mar 23, 2011 4:46 am

Re: Turning 62 and SS alternatives

Post by SGM » Wed Feb 12, 2020 2:04 pm

restingonmylaurels wrote:
Wed Feb 12, 2020 11:22 am
SGM wrote:
Wed Feb 12, 2020 9:57 am
We delayed to 70. I used the time when I was retired or working part-time to convert traditional tax deferred accounts to Roth IRAs. I would have had to take RMDs this year. My Roth accounts have increased by 50% since I stopped conversions. My first RMD would have been 7.3% of the amount I had in Roth accounts at the time of the last conversion. Earlier conversions were done when the totals were even lower. Meanwhile I lowered my taxable account a little bit by paying taxes for the conversions out of taxable accounts. However, my taxable accounts have increased greatly over the same period.

Now I am quite pleased to have a higher SS deposit every month and have no unneeded RMDs. We were able to use the spousal benefit that allowed both our age 70 benefits to grow. The law has changed somewhat, but a friend recently took her spousal benefit as her husband had been collecting his own SS benefit. Her age 70 benefit will continue to grow.
Thanks for that. Out of curiosity, did you fund your expenses from 62 to 70 by working part-time or from your taxable accounts or from your tax deferred accounts or all of these?
From 62-66 I worked part time. From 66 to the present we funded our expenses from our taxable account, but we do have some pension income that we started at age 70 as well.

Topic Author
restingonmylaurels
Posts: 306
Joined: Tue Apr 14, 2015 11:02 am

Re: Turning 62 and SS alternatives

Post by restingonmylaurels » Wed Feb 12, 2020 2:06 pm

ObliviousInvestor wrote:
Wed Feb 12, 2020 12:47 pm
JoeRetire wrote:
Wed Feb 12, 2020 12:43 pm
ObliviousInvestor wrote:
Wed Feb 12, 2020 9:20 am
The "super actuarially advantageous to delay" point is the result of the fact that when the higher earner delays, it increases the amount the couple receives as long as either person is still alive. In other words, they're buying a second-to-die joint life annuity, at what was originally intended to be the price of a single life annuity. And given today's life expectancies and interest rates, they're buying a second-to-die joint life annuity at roughly the price of a first-to-die joint life annuity -- which is an even more advantageous price.
Even better - the second-to-die joint life annuity is inflation-protected!
Indeed. (Even more relevant now than it's ever been, given that Principal stopped selling inflation-adjusted annuities several months ago, so they're no longer available at all commercially.)
Let me increase the complexity of the question of delaying SS by introducing a defined benefit pension plan, which has all the usual payment options (straight-life, joint and survivor, certain and continuous).

What are the questions of that pension plan benefit to know whether it is still appropriate to delay SS or instead to delay the DBPP?

Topic Author
restingonmylaurels
Posts: 306
Joined: Tue Apr 14, 2015 11:02 am

Re: Turning 62 and SS alternatives

Post by restingonmylaurels » Wed Feb 12, 2020 2:09 pm

SGM wrote:
Wed Feb 12, 2020 2:04 pm
restingonmylaurels wrote:
Wed Feb 12, 2020 11:22 am
SGM wrote:
Wed Feb 12, 2020 9:57 am
We delayed to 70. I used the time when I was retired or working part-time to convert traditional tax deferred accounts to Roth IRAs. I would have had to take RMDs this year. My Roth accounts have increased by 50% since I stopped conversions. My first RMD would have been 7.3% of the amount I had in Roth accounts at the time of the last conversion. Earlier conversions were done when the totals were even lower. Meanwhile I lowered my taxable account a little bit by paying taxes for the conversions out of taxable accounts. However, my taxable accounts have increased greatly over the same period.

Now I am quite pleased to have a higher SS deposit every month and have no unneeded RMDs. We were able to use the spousal benefit that allowed both our age 70 benefits to grow. The law has changed somewhat, but a friend recently took her spousal benefit as her husband had been collecting his own SS benefit. Her age 70 benefit will continue to grow.
Thanks for that. Out of curiosity, did you fund your expenses from 62 to 70 by working part-time or from your taxable accounts or from your tax deferred accounts or all of these?
From 62-66 I worked part time. From 66 to the present we funded our expenses from our taxable account, but we do have some pension income that we started at age 70 as well.
Did you also have a tax deferred account available at the same time? If so, why did you fund your expenses from the taxable instead of the tax deferred account?

User avatar
ObliviousInvestor
Posts: 3613
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Turning 62 and SS alternatives

Post by ObliviousInvestor » Thu Feb 13, 2020 7:53 am

restingonmylaurels wrote:
Wed Feb 12, 2020 2:06 pm
Let me increase the complexity of the question of delaying SS by introducing a defined benefit pension plan, which has all the usual payment options (straight-life, joint and survivor, certain and continuous).

What are the questions of that pension plan benefit to know whether it is still appropriate to delay SS or instead to delay the DBPP?
Like your tax questions, there are an assortment of threads here where this topic has been discussed.

In short, it isn't necessarily an either/or decision.

Step 1 would be to determine your goal(s) with respect to the decision. Is it just to maximize (PV of) expected total spendable dollars over the course of retirement? Or is longevity risk a concern, such that decisions that reduce that risk (namely, delaying both Social Security and the DB pension) might be advantageous even if they do not result in maximized expected spendable dollars?

If the goal is just to maximize, the next step would be to examine the DB options in much the same way that one does with the Social Security claiming options -- calculate the expected PV of each one, given certain mortality assumptions and discount rate(s).

Then taxes would be incorporated into the analysis in the same way they would be for a Social Security analysis (ideally, by including differential taxes as a cash flow in the PV analysis).

Conversely, if the goal is to reduce longevity risk, then one way to account for that is to add a step in the process that is essentially "well how much pension-style income do you think is enough?" And reject any strategies that provide less than that amount of income. (This would be something of a "safety-first" approach, as Wade Pfau would call it.)

Alternatively one can take a probabilistic approach, using historical data and/or MC simulations to determine metrics such as a) probability of portfolio depletion, b) mean/median age at depletion in depletion scenarios (or alternatively mean/median total shortfall relative to desired spending, in depletion scenarios), c) mean/median bequest, and any other metrics desired for each strategy being considered.

If these topics are of interest to you, I'd recommend Pfau's book Safety-First Retirement Planning.
Mike Piper, author/blogger

wolf359
Posts: 2014
Joined: Sun Mar 15, 2015 8:47 am

Re: Turning 62 and SS alternatives

Post by wolf359 » Thu Feb 13, 2020 8:15 am

restingonmylaurels wrote:
Tue Feb 11, 2020 6:30 am
I am turning 62 later this year and am staring at the decision on when to start SS.

Because all starting options are supposed to be actuarially neutral, it seems the decision is one of balancing the risk of living longer than expected versus the risk that benefits will be reduced in the future.

Assuming it is better to start at FRA for other reasons (DW), I would need to replace that SS PIA stream from another source, likely investments. I have identified three investment sources (T-IRA, bond fund dividends, bond fund sales) and looked at advantages/disadvantages of each:

Sources:
IRA capital: Regular income tax rates on withdrawals; save later on RMD taxation; no return on withdrawn capital
BF income: Regular income tax rates on dividends; no impact on RMD taxation; regular returns on all capital
BF capital: LTCG tax rates of sales; no impact on RMD taxation; no return on withdrawn capital

Are these the main decision criteria to evaluate the SS replacement sources and how best to weight them?
I think you're overthinking this.

One decision is whether or not to delay Social Security.

A second decision is how you are going to fund your retirement, and what your best withdrawal strategy for your situation is.

You do not need to designate any funds to replace the income stream from Social Security. You have multiple sources of income available to you that will be coming available at different timeframes. It is okay to withdraw more from the sources that are available now and reduce that draw in the future as different funds become available.

You are over 59 1/2, so your full retirement accounts are available to you without penalty. You may want to post your financial details and request portfolio help with regards to the best withdrawal strategy. (See: https://www.bogleheads.org/wiki/Asking_ ... _questions) A key modification to that template is that you should also indicate how much income you need to pull from the portfolio, and information about potential income streams (amount and timing). If you or your spouse are still working, whether or not you decided to delay Social Security, and other information about income will be needed to help answer this question.

This type of question is actually rather complicated. You may want to consider going to a fiduciary financial planner who charges by the hour to review your overall position and set up an overall approach to retirement. There can be many moving parts, such as the timing of Medicare, increases in taxes depending upon which assets get withdrawn, how to avoid taxes by converting some of the traditional funds to Roths, reducing your RMDs, et cetera.

nguy44
Posts: 243
Joined: Sun Jul 09, 2017 1:52 pm

Re: Turning 62 and SS alternatives

Post by nguy44 » Thu Feb 13, 2020 8:24 am

Given where the markets are today, my simple approach would be to take out enough from the tIRA to replace the SS amount for several years. I would just bite the bullet on the taxes. It is a tradeoff of future gains vs. stability. This avoids forced withdrawals during down market times.

My approach - which I do not know if you have time to do - was to stash away enough is cash to cover the anticipated SS stream until I choose to take it. I do have some pension income (non-COLA) that made this a little easier as we plan to spend comfortably in retirement. I started this a few years before I actually retired (I retired at 60, I am 62 now). Then every year I look at my my overall financial situation and decide if I want to delay it further or not. Right now my current plan is to take it no earlier than 65 (though in theory with my current spending my cash could let me delay to close to 70).

But your options are not an absolute... perhaps consider blending them together?

Post Reply