Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
While my city data handle is OLD DUFFER, I guess I am not that old.
I am a retired person, age 62. I stopped working this year but have decided to not start collecting Social Security until I turn 70.
Once I turn 70 I will be collecting $2400 a month in benefits. If I collect benefits at age 62 my monthly benefit will be about $1500 a month.
But to wait until I am 70 to collect I have to take an average withdrawal of about 7% a year from my retirement nest egg. That is a very high percentage but it temporary for eight years. Once I start collecting Social Security at age 70, my withdrawals will go down to 3%.
So if you retired and are waiting to collect Social Security until you are 70 years old are you taking out a large percent of your retirement nest egg until you reach that age?
I am considering doing that in a few years and likely will. In my case, I will be looking at 6 years. My plan is to get a 5 year annuity and pay myself directly out of my funds for one year. I am not sure what my % draw will be; a lot depends on what happens in the next 6 years but I would be okay with drawing down half my funds to make it work. that's what I saved it for. An annuity is not a great deal but it would take the sequence risk out of the equation; I would buy one that pays what my SS will pay when I start taking it (I won't have COLA but I think for 5 years I can manage) if I can get all the numbers to work (income versus expenses). The tough thing is early years prior to medicare; I will only have 1 and what happens between now and then with insurance costs is probably the one wildcard that could have me push back a year (I hope not).
I did not do the math but I think your plan is correct. Delay SS. I look at it as buying an annuity that is inflation adjusted. I do not think you can get a better deal.
You can always start taking SS along the way so no reason not to delay now.
The stock market will probably tank between now an 70. Thus you want to be sure that the money you need is in some sort of a fixed income investment. Since interest rates will be increasing I would stick with CD's and maybe very short term bonds.
In shot have at least 3 to 5 years of expenses in "cash" to cover your expenses until 70.
You have probably done the math, but let me do a recap to see if you missed anything:
1). You will give-up $1500 per month income over 8-years = $18000 x 8 =$144,000
2). At 70, you will gain $900 per month ($2400 lifetime) over the $1500 you would have now
3). In 13+ years you will recoup your $144K at $900 per month - getting you to break even at 83
4). Assuming 7% IRA withdrawal will offset the $18K-$30K per year SS, you will pay 30-35% in taxes, so must actually withdraw about $25K-$42K to net $18K-$30K per year -- Over 8-years, that's another $67K-$92K in taxes (at 30%).
5). In will take another 6-8 years to recoup the $67-92K at $900 per month - getting you to break even at 89-91. (Ultimately, you or your heirs will pay these taxes anyway, so it may be a wash.
6). Your remaining estate (IRA) will have decreased by $200K - $340K - against which you will achieve no investment gain over the years. (Even at 3% AAG, that is $6K-10K per year -lifetime)
7). At 70-1/2, your RMD's will start, so even though you might want to reduce you withdrawals, to 3%, you will still need to take 5-6% in RMD's, against which you will pay 30-35% taxes (unless rates go-up). (At $15K (?) per year, that is another $5K in taxes, which will offset about 6-months of your $900 per month SS increase).
My math includes hypothetical numbers. Test it with your own $'s for a more accurate picture.
This was just the type of analysis I was looking for. GREAT!
Quote:
Originally Posted by jghorton
You have probably done the math, but let me recap a few thoughts.
1). You will give-up $1500 per month income over 8-years = $18000 x 8 =$144,000
2). At 70, you will gain $900 per month ($2400 lifetime) over the $1500 you would have now
3). In 13+ years you will recoup your $144K at $900 per month - getting you to break even at 83
4). Assuming 7% IRA withdrawal will offset the $18K per year SS, you will pay 30-35% in taxes, so must actually withdraw about $25K to net $18K -- Over 8-years, that's another $50K in taxes.
5). It will take 4.5 years to recoup that $50K at $900 per month - getting you to breakeven at 87+
6). Your remaining estate (IRA) will have decreased by at least $200K - against which you will achieve no investment gain over the years.
7). At 70-1/2, your RMD's will start, so even though you might want to reduce you withdrawals then, you will still need to take 5-6% in RMD's, against which you will pay 30-35% taxes (unless rates go-up). (At $15K? per year, that is another $5K in taxes, which will offset about 6-months of your $900 increase in SS).
Obviously, some of my math is based on hypothetical numbers. Fill-in your own to get a more accurate picture.
4). Assuming 7% IRA withdrawal will offset the $18K-$30K per year SS, you will pay 30-35% in taxes, so must actually withdraw about $25K-$42K to net $18K-$30K per year -- Over 8-years, that's another $67K-$92K in taxes (at 30%).
The federal tax will be 10% on about the first 9k for a single filer or on the first 18k for a couple and the rest at 15%. And you get your standard deduction of around 6k for an individual. For a single filer to end up with $18k, the federal tax is only going to be around $1500. You may also have state but it will likely be substantially less. That is another of my justifications for delaying; I can pay a lot less tax on the money than what I shielded it from to put it in. Someone may come along and correct me, but I think this is correct (figures may be slightly off).
While my city data handle is OLD DUFFER, I guess I am not that old.
I am a retired person, age 62. I stopped working this year but have decided to not start collecting Social Security until I turn 70.
Once I turn 70 I will be collecting $2400 a month in benefits. If I collect benefits at age 62 my monthly benefit will be about $1500 a month.
But to wait until I am 70 to collect I have to take an average withdrawal of about 7% a year from my retirement nest egg. That is a very high percentage but it temporary for eight years. Once I start collecting Social Security at age 70, my withdrawals will go down to 3%.
So if you retired and are waiting to collect Social Security until you are 70 years old are you taking out a large percent of your retirement nest egg until you reach that age?
8 years (age 62 to 70) at $1,500.00 per month is $18,000 per year or $144,00.00 over the 8 years.
Start collecting $2,400.00 per month at age 70 ($900.00 per month over the $1,500.00) and it will take about 13 years (until age 83) to break even.
The above does not consider the 4% difference in taking from your nest egg. You will have to compute that.
I opted for age 62. I am now 74 and somewhere in my mid-80's I might say...well I should have....NOT....LOL
It probably will be more than 2400 by age 70 if we have some inflation and COLA adjustments and after age 70 any COLA will be on that full amount. You also need to factor in the tax advantage when you pay yourself completely out of withdrawals. It is more complicated than a straight money breakeven calculation.
8 years (age 62 to 70) at $1,500.00 per month is $18,000 per year or $144,00.00 over the 8 years.
Start collecting $2,400.00 per month at age 70 ($900.00 per month over the $1,500.00) and it will take about 13 years (until age 83) to break even.
The above does not consider the 4% difference in taking from your nest egg. You will have to compute that.
I opted for age 62. I am now 74 and somewhere in my mid-80's I might say...well I should have....NOT....LOL
there could be other items increasing the break even like spending down invested assets and not getting spousal benefits and adders while delaying . break even can take 22 years assuming you will spend down a balanced portfolio delaying .
but it still is worth delaying especially if a couple .
I went poking around and found the tax info I was hoping someone would come along and verify.
Lifted from another thread. I believe these figures are for a couple.
Quote:
Originally Posted by mathjak107
...
for many who delay ss the gov't gives you a gift .
you can take 22k tax free from your ira's every year as the standard deduction and exemptions give you that money tax free.
you can take up to 42k out and pay as little as 4.50% tax on the money .
for anyone who can do that and follows conventional wrong wisdom of do not spend deferred money first is making a big mistake . once ss and rmd's kick in you will never see that bracket again.
...
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
