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Old 03-05-2016, 03:01 PM
 
72,322 posts, read 72,269,260 times
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Quote:
Originally Posted by Robyn55 View Post
Don't forget that future cash flows have to be discounted to present value to make meaningful comparisons. A dollar you expect to get 10 years from now is worth (a lot) less than a dollar you get today. I know that concepts like discounting things to present value can make peoples' eyes glaze over - but they're extremely important when discussing future cash flows.

It is pretty easy to compare the present value of Social Security payments (or annuities or similar) in various amounts starting at certain ages using an annuity calculator.* Although one has to make 2 assumptions. One is an interest rate. I use 3% - because that is a reasonable - conservative rate of return these days. Note that the higher the interest rate you use - the less the value of money in the future.

The other is life expectancy. Which tends to be based on personal circumstances. So I'd use a decent life expectancy calculator for that one.

Another issue I have is strictly emotional - not math-based. There is always something in the back of my brain that says a bird in the hand is worth more than the proverbial possibly larger bird in the bush. And I cannot rule out Congress doing things in the future that might affect adversely people who aren't taking Social Security now (Congress could of course do that to people who are taking Social Security now - but I think the odds are lower). Like the Medicare "gotcha" last year - but worse. Robyn

*Social Security used to make these computations for you on its website. But the numbers were so conducive to encouraging people to start SS early - thereby increasing current "trust fund" ouflows - that Social Security eliminated its calculator.
that dollar is still inflation adjusted in ss , dollars should remain constant . everything in life is a gamble and has risk . we all just go with the perceived lower risk . i would sooner bet on our longevity as a couple and ss not changing much then markets and interest rates if i had to pick one .
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Old 03-05-2016, 03:23 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 18,001,077 times
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Quote:
Originally Posted by BellaDL View Post
I am wrestling with the maths right now to decide how much to convert my husband 401K to Roth IRA this year taking into consideration both Medicare premium brackets and Federal tax brackets.

My goal is to stay below the max limit of the Medicare MAGI bracket of $170K to $214K (2016 part B extra is $48.7 and part D is $12.7 per month). The premium extras for the next bracket are almost 3x more!

The Fed 25% bracket is from ~$75K to ~$152K and 28% is from ~$152K to ~ $231K. I am thinking of staying below the $214K Medicare number so we will only be taxed at 28% for around $62K.

I tried backdoor Roth IRA once when it was first offered (don't remember what year) and it was a mess since we had multiple previous IRA accounts (both deductible and non-deductibe). First we got IRS notifications of owning >$10K in taxes then after we filed some amended returns with explanations etc, it was reduced to $1K.

After that, I decided that the hassle was not worth it and never tried the backdoor Roth again. We have not contributed to our IRA non-deductible accounts for 2015 and probably will not bother since doing so will just increase the RMDs starting next year!

Back to the original topic of 'How much can I spend in retirement?', I am in total agreement with Robyn.
I did some Roth conversions a long time back. When they kind of made some sense (especially the first year when you could pay the taxes over a 2 year period). The older I've gotten - the less sense they've made. Remember the old saying about the bird in hand. The longer you can defer paying taxes - well that's a plus for you - the taxpayer. Also - the tax bite on 5 figure rollovers can be surprisingly large % wise - depending on your tax situation. We have a lot of deductible medical expenses - and big chunks get phased out pretty fast with large rollovers.

Also - my Rollover IRA is such a large part of our liquid net worth these days that I'd have to roll over a lot - and pay a ton of taxes - to make any kind of dent in my anticipated RMDs. So I'm content to just start taking the RMDs in 2018 (the RMDs are less than any amount I'd need to roll over to make a dent in the RMDs).

Quote:
The market has fluctuated a lot since 2007 so it's hard to estimate what is the right draw down amount. 2015 was not too bad a year in comparing to the last few months but our total dividends and capital gains amount for 2015 was only 65% of 2014 (with no changes in our portfolio). I have no ways of knowing what the total income from our taxable investments will be in 2016 and may have to wait until near the end of the year to decide how much of 401K amount to convert to Roth IRA to stay within our goal of <$214K.

My financial plan is just to 'stay the course', not making any changes in our portfolios or standard of living (which is assured with at least 3x in cash saving). In a year or two, I expect our incoming fixed income will be sufficient to cover our expenses and we will not have to touch any parts of our retirement savings.
What you mention is one reason I have always favored fixed income for most of our investments and retiree portfolios. I realize now isn't the best time to be an advocate for fixed income - but I've been saying the same thing for the last 30 years (my husband and I stopped working in 1985). Capital gains are totally unpredictable. Dividends are more predictable - but can be dicey (we know a fair number of elderly people who lost a bundle on high dividend paying financial stocks post-2008 and the same may come to pass in places like the energy sector now). Robyn
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Old 03-05-2016, 08:24 PM
 
Location: Baltimore, MD
3,749 posts, read 4,237,428 times
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Quote:
Originally Posted by jrkliny View Post
Rules are different for those on SSDI. My wife collected SSDI until age 65. Then her benefits switched to SS. Later she switched again and collected at half my rate.
Was 65 your wife's full retirement age?

The prior poster wants to know whether your spouse was able to earn delayed credits on her earnings record while receiving spousal benefits from your record. If so, did she have to reimburse SSA for the benefits received while she was disabled?

The "Then her [disability] benefits switched to SS [retirement] " and "Later she switched again..." is the confusing part. The reason this is asked is because SSA seemingly changed the "rules" about a year ago disallowing disability recipients from earning delayed credits on their own record while collecting spousal benefits after reaching full retirement age UNLESS the recipient repays benefits received while disabled.

It's a little more complicated than what I have written but that's the shorthand version. So the initial question that needs to be answered is whether your wife ceased disability benefits BEFORE she reached full retirement age.
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Old 03-05-2016, 09:39 PM
 
Location: Baltimore, MD
3,749 posts, read 4,237,428 times
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Quote:
Originally Posted by Robyn55 View Post
<snip>

Another issue I have is strictly emotional - not math-based. There is always something in the back of my brain that says a bird in the hand is worth more than the proverbial possibly larger bird in the bush. And I cannot rule out Congress doing things in the future that might affect adversely people who aren't taking Social Security now (Congress could of course do that to people who are taking Social Security now - but I think the odds are lower). Like the Medicare "gotcha" last year - but worse. Robyn
Everyone keeps forgetting (or is in denial) that benefits will probably be reduced by about 21-23% in 2033-2034. All of a sudden, 2033-2034 doesn't seem that far off to me. IF the cuts are made, the biggest cuts will be borne by those with the largest benefits. In 2014, the Chief Actuary stated:

"[i]f changes are made that only reduce benefits and not a nickel more is brought into the system, but all adjustments done on the benefit reduction side, we could see on the order of a 23 percent reduction. Not 23 percent for everyone (because of the progressive nature of benefits), but across the board, 23 percent." Top insider helps evaluate security of Social Security - tribunedigital-chicagotribune

In 2012, Congressman Paul Ryan asked the Chief Actuary "Does the 23% cut hit a low income worker just as much as it hits a high income individual?" Goss never directly answered this question although he did suggest that there were no regulations that prevented SSA from fashioning its own solution. However, it does appear that Ryan and Goss (see above) are acknowledging that it's not feasible to apply the cut equally to everyone.

I ran some numbers using the current federal poverty levels and the moderate to average annual benefit and I can't see where Congress could cut the benefits equally among the recipients without sending more low and moderate income beneficiaries below the poverty level. Practically speaking, we would be shifting SS retirement beneficiaries into the welfare based SSI program. (BTW, for a single person household, the current poverty level is $11,880.)

This is my long winded explanation for why I would probably not bother waiting until I am 70 to claim my benefits.

Last edited by lenora; 03-05-2016 at 09:41 PM.. Reason: deleted youtube link to goss testimony - too large
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Old 03-06-2016, 03:14 AM
 
72,322 posts, read 72,269,260 times
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my feeling is ss is such an important part of american culture and life it will be fully funded in a heart beat . they may push out retirement age or raise pay roll taxes but some how they will fund it . like everything else the gov't does at the 11th hour they find a way . medicare is the bigger issue to worry about

Last edited by mathjak107; 03-06-2016 at 03:49 AM..
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Old 03-06-2016, 06:41 AM
 
Location: Mount Airy, Maryland
10,514 posts, read 5,982,173 times
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Quote:
Originally Posted by mathjak107 View Post
my feeling is ss is such an important part of american culture and life it will be fully funded in a heart beat . they may push out retirement age or raise pay roll taxes but some how they will fund it . like everything else the gov't does at the 11th hour they find a way . medicare is the bigger issue to worry about
My feelings exactly. Dramatic benefit reduction is political suicide, they'll find a way. But the real problem is one fewer people are talking about, Medicare.
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Old 03-06-2016, 06:51 AM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 18,001,077 times
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Quote:
Originally Posted by mathjak107 View Post
that dollar is still inflation adjusted in ss , dollars should remain constant . everything in life is a gamble and has risk . we all just go with the perceived lower risk . i would sooner bet on our longevity as a couple and ss not changing much then markets and interest rates if i had to pick one .
Present value calculations (whether you're talking about SS or annuities or similar) don't depend on inflation. They depend on interest rates:

The interest rate used is the risk-free interest rate if there are no risks involved in the project. The rate of return from the project must equal or exceed this rate of return or it would be better to invest the capital in these risk free assets. If there are risks involved in an investment this can be reflected through the use of a risk premium. The risk premium required can be found by comparing the project with the rate of return required from other projects with similar risks. Thus it is possible for investors to take account of any uncertainty involved in various investments.

https://en.wikipedia.org/wiki/Present_value

I would use 3% if I were analyzing the situation today because that is basically what I can get in a longer term risk free investment today. When my husband and I started to collect SS 7/9 years ago - interest rates were higher - and I used a higher discount rate when I made my calculations.

Our SS is relatively small compared to our assets/income and cost of living. The more one is dependent on SS in terms of one's income - the more important it can be for that person to bet that he/she will win against the house (the government). OTOH - for someone who is largely/totally dependent on SS - well that person might not be able to postpone taking SS until age 70.

Note that the bet I'm talking about is the bet that a person or a couple will outlive their normal expectancies. It's just like the bet you're making when you take out an annuity. Because that is how the government comes up with its numbers. FWIW - the beneficiary might have a slight edge against the house these days when it comes to taking SS early. But that's because the early retirement age wasn't changed when the FRA changed.

If anyone wants to bet the government is wrong in his/her particular case about life expectancy - that's ok by me. But I am not the gambling type . Robyn
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Old 03-06-2016, 06:59 AM
 
Location: Columbia SC
9,069 posts, read 7,834,628 times
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Robyn

My wife was just shy of 76 (she was 2 years older then me) when she died 4 months ago. She received an early buyout retirement from a high level state government position (not here in SC) with a great, immediately paying retirement package beginning at age 62.

She was actually 62 with 18 years of service so the state added 3 years to her age and 2 years to her service so on paper (to the state) she retired at 65 with 20 years. The added 5 years was a one time deal to upper management.

The state then contracted with her for 6 months, at her same salary level, working 3 days a week in her old position and paid her on a 1099. That was a very lucrative 6 months for us. She went on SS at age 62 (when the contract ended) and collected until her death. She had also been collecting RMD's for a few years and her IRA's have now become mine.

Her retirement package was so good that as the survivor I can continue Supplemental Medical with Part D (drugs) for $50.00 per month. It would end if I remarried. Got to love that.

As you have said, many chatting are just approaching or new to retirement and most are a couple. As you age, your views change. When you become a single, they change even more. I participate hear to learn.
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Old 03-06-2016, 07:04 AM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 18,001,077 times
Reputation: 6724
Quote:
Originally Posted by lenora View Post
Everyone keeps forgetting (or is in denial) that benefits will probably be reduced by about 21-23% in 2033-2034. All of a sudden, 2033-2034 doesn't seem that far off to me. IF the cuts are made, the biggest cuts will be borne by those with the largest benefits. In 2014, the Chief Actuary stated:

"[i]f changes are made that only reduce benefits and not a nickel more is brought into the system, but all adjustments done on the benefit reduction side, we could see on the order of a 23 percent reduction. Not 23 percent for everyone (because of the progressive nature of benefits), but across the board, 23 percent." Top insider helps evaluate security of Social Security - tribunedigital-chicagotribune

In 2012, Congressman Paul Ryan asked the Chief Actuary "Does the 23% cut hit a low income worker just as much as it hits a high income individual?" Goss never directly answered this question although he did suggest that there were no regulations that prevented SSA from fashioning its own solution. However, it does appear that Ryan and Goss (see above) are acknowledging that it's not feasible to apply the cut equally to everyone.

I ran some numbers using the current federal poverty levels and the moderate to average annual benefit and I can't see where Congress could cut the benefits equally among the recipients without sending more low and moderate income beneficiaries below the poverty level. Practically speaking, we would be shifting SS retirement beneficiaries into the welfare based SSI program. (BTW, for a single person household, the current poverty level is $11,880.)

This is my long winded explanation for why I would probably not bother waiting until I am 70 to claim my benefits.
Thanks for some background information that substantiates my somewhat ill-defined feelings (which I'm sure I've developed over the years as a result of reading about things like this or similar). Anyone who isn't anywhere near the poverty level should be thinking about them - especially if they're younger and doing retirement planning. Robyn
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Old 03-06-2016, 07:08 AM
 
72,322 posts, read 72,269,260 times
Reputation: 49849
Quote:
Originally Posted by Robyn55 View Post
Present value calculations (whether you're talking about SS or annuities or similar) don't depend on inflation. They depend on interest rates:

The interest rate used is the risk-free interest rate if there are no risks involved in the project. The rate of return from the project must equal or exceed this rate of return or it would be better to invest the capital in these risk free assets. If there are risks involved in an investment this can be reflected through the use of a risk premium. The risk premium required can be found by comparing the project with the rate of return required from other projects with similar risks. Thus it is possible for investors to take account of any uncertainty involved in various investments.

https://en.wikipedia.org/wiki/Present_value

I would use 3% if I were analyzing the situation today because that is basically what I can get in a longer term risk free investment today. When my husband and I started to collect SS 7/9 years ago - interest rates were higher - and I used a higher discount rate when I made my calculations.

Our SS is relatively small compared to our assets/income and cost of living. The more one is dependent on SS in terms of one's income - the more important it can be for that person to bet that he/she will win against the house (the government). OTOH - for someone who is largely/totally dependent on SS - well that person might not be able to postpone taking SS until age 70.

Note that the bet I'm talking about is the bet that a person or a couple will outlive their normal expectancies. It's just like the bet you're making when you take out an annuity. Because that is how the government comes up with its numbers. FWIW - the beneficiary might have a slight edge against the house these days when it comes to taking SS early. But that's because the early retirement age wasn't changed when the FRA changed.

If anyone wants to bet the government is wrong in his/her particular case about life expectancy - that's ok by me. But I am not the gambling type . Robyn

depending how long you live then the return on delaying ss can be far more then 3% . by age 92 the real return would be about 5% and 95 would be a real return of almost 6% . that is amazing considering ss is on par with a gov't bond .



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