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i am never in favor of seeing anyone delay filing and spending down their own assets if it brings them down to just "fumes ".
if that is the case the person is either underfunded for their plan or they just plain have no choice when it comes to filing earlier and the option to delay really is not a choice on the table ..
if anyone is spending dangerously low and yes folks do this , it is not recommended they attempt to delay . life is filled with unexpected emergency's and unexpected spending . 30-40% of the liquid assets is really about all i am comfortable seeing being shelled out .
40% would be pushing it for sure, IMHO. Assuming SS benefits gained are proportional to savings at hand, the larger the gain, the easier the risk of a higher percentage. If it costs $100k to delay, then that would mean if one had $250k saved, and only only $150k left. I think that's too low, and it would take steely balls to persevere with those numbers. But if it cost $200k to delay, then a drop from $500k to 300k seems more managable. 30%, going from $300k to 200k is more tolerable as a max for a $100k cost of annuity, whereas $600k to $400k, much more comfortable. I'm aiming for 20%-25%.
In that scenario, I would go an even lower percentage then. My examples were definitely geared towards those that would prefer to live entirely on SS, which delaying for the added annuity certainly makes for a more difficult decision.
Its back to the math. Joe Average has $300k saved. (And according to reports, the real Joe doesn't even have that, so immediately a large percentage of people are deleted from this example). He has to retire at 62. For WHAT EVER reason. His SS is $1400/mo. Tax free, $16,800/yr, or roughly equal to a $19k/yr job, that would pay 15% taxes. Joe is upset. He's heard of the 4% rule, and realizes even though he busted his hump to save that $300k, if he plays it safe, thats ony $12k a year more, so he has to live on around $29k/yr, tax free, equal to about $33k taxed. He was making around $60k when he retired, and he knows he's got increased health insurance costs until Medicare kicks in.
He's also heard that he can get 72% more SS if he delays filing to 70. That's $1000 a month! He likes the sound of that, but he's got to live on just his savings then. He goes to talk to his wicked smart friend Bill. "Can I do it and what does that mean?" Also, Joe, like most average people, doesn't trust or know much about the stock market. He prefers to keep his money in long term CDs in his tIRA, where he gets 2 1/2%. He doesn't realize that the 4% rule assumes you are making at least 5%, which today requires the stock market.
Joe realizes he can't have that extra $1000 a month right away, he hasn't earned it yet. But he also knows he can't make it to 70 on what SS pays now. I He decides if he just had $500/mo more, he would be OK. Can he borrow that money from himself for 8 years, and then pay it back with the extra grand he would be getting?
He and Bill decide to do a rough estimate. He was planning to have to take $12k a year anyway. He planned on his $300k earning $6k a year. They figure, since between taxes and the reduced earnings from the net withdrawals, that means it would mean cost $50k/yr anyway, and he would have $250k left.
If he lives on just his savings, with an extra 500 bucks a month, then he needs $17000+ $6000 + $12000, or $35k a year. That's $280k right there! Are you crazy? Even with interest, which will drop to almost $1000 by the end, he would only have $42k left!
Of course, says Bill, now you only need $6000/yr from your savings. He doesn't worry about RMDs because he needs more than that amount per year anyway.
But now he's still dropping his savings $5k/yr so he only has about 8yrs left then no savings, so is he worse off than when he started, except now his SS would be around $34k/yr at age 78, after the COLAs, with no savings?
So basically, explains Bill, for the ability to have an extra $6000/yr for 16years, you end up a little better than where you would be with the same income, but with $250k less in your IRA. Will it be worth it?
"Heck no!" Says Joe.
"I don't understand", says Bill. "The only reason we did this was because you said you can't live on what you would be getting?"
Oh. Thats right. A quick look at the numbers, shows that if Joe took out an extra $6k/yr from savings, to equal what he would have had, had he assumed delaying,shows that at age 78, when he would have no savings left, he would still have $103k in savings. Of course his SS would only be about $20k/yr at 78. So even assuming that all his inflationary costs were covered by his SS increases, (how well does that work), if he only took out what he would have had, equal to delaying, $14k a year added to his $20k SS, (to start, but increasing every year to compensate for the higher increases in COLA his delayed SS would make, which would mean pulling out $19k a year at the end) so then by age 86 his balance is then zero, and he now has a SS of just under $26k a year to live on, and thats it. Of course his delayed SS would now be $45/yr.
"So let me get this straight, either way I live better, but one way I have no savings at age 78, ut. Asically never have to worry about savings withdrawals, etc, and my full income is COLA adjusted. The other way, I have smaller COLA adjustments, and still live the same way until I'm 86, after which I only have $26k to live on vs $45k".
"Yup" says Bill.
"So as long as I'm dead by 86, then I'm fine using my savings".
"But what if you do live past 86?"
So for single Joe, it really boils down to not living past 86. Now imagine everything is the same, but is married Joe. And married Joes wife is 5 years younger. But she only ever gets half of his SS. Of course, the money SHOULD last a bit longer with her added $700/mo, but IF Joes dies younger then he wonders if she will be taken care off.
Very easy to see that there is no right or wrong answer.
....did I do it right. Took the age of 80 as an ending point, went to the SS website and got the estimated benefits for ages 62, 67 (FRA) and 70. Forget 70...not gonna happen. From 62 to 80= 216 months....from 67 to 80= 156 months, using those timelines, I multiplied the benefit starting at each age, times the number of months (216 & 156), and then divided the difference between the two totals by 12 months, and came up with the monthly difference in benefit if I retired at 62.....it ended up being a small amount less to cut loose at 62, and even though Medical Insurance may be the road block (will need to work the numbers at that time), if we can fund the Insurance, I see no reason to work beyond 62.....Wife disagrees. I know it's just estimates, but being 57 and 62 is around the corner, I want to be sure I'm figuring this correctly....on the upside, I also have a Pension, and love my job.
You are wise doing this now and it is recommended for folks with pensions and Social Security. You have two payout schedules to work with and can predict with more reliability you fixed income at varying age points. We were in a similar situation and the advanced and detailed planning have worked out well and as predicted.
One word of advice that often gets missed in calculating when to take SS and pensions is the impact of COLA once you retire. We have been in a low COLA environment but that is not for ever. Also factor in the COLA increase at various combined SS/pension levels. A 3% COLA applied to a higher pension/SS benefit can be a chunk of change especially when compounded over a 5-10 year period of time.
if anyone is spending dangerously low and yes folks do this , it is not recommended they attempt to delay . life is filled with unexpected emergency's and unexpected spending . 30-40% of the liquid assets is really about all i am comfortable seeing being shelled out .
With a pension as a base it is entirely possible that the future SS benefit will be in part or fully invested thus helping to replenish the nest egg. As I have often said retirement planning with a pension and SS is a different ball game. Especially if both spouses have them and can do survivor benefits etc etc. The healthier the combined pension/SS benefit the greater the flexibility and options. We have talked in pm so you know our situation and we are now about to truly enter Bada Bing land. I am so thankful I had the benefit of others in our situation along with publications directed at.
Just as the Money issue that featured you other featured couples with situations similar to our was a blessing and worked. You were an inspiration for others and others were for us.
for folks who have pensions and other outside sources of income that supports them the pay check never really stopped .
they are in a totally different category than those who use their portfolio's and ss as a total means of support .
generally spending down and draw rate discussions do not pertain to them the same as a retiree who counts on them for support .
I don't know all that math you did but you can get a Reduced Benefit table on the Social Security website that will tell you month over month what your reduced benefit it.
It's very simple to see if "there's a reason" to work longer.
The reason is called: Giving up 25% of your FRA benefit.
Or if you do FRA, you're giving up 8% per year thereafter.
If you can live without it - then retire!
I have a business and could keep working indefinitely but I am getting SICK AND TIRED of all the government paperwork required every day of my life, so I'm pretty sure I won't even make FRA.
But I've already determined I can live on any of the milestones so it's only a matter of what "luxury" I'm going to give up if I don't want to tap into any of my meager assets.
I would suggest you and your wife map out HOW you're going to do continuing care throughout each life stage which is what EVERYONE wants to ignore. While proclaiming "I'll never go to one of THOSE places" - as if they have a choice.
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