File/defer, I think autocorrection is the problem.
One of the things that we learned from retirement planning classes (and followup visits to financial planner) is that there is a lot of flexibility in the SS decision. Prior to that I had simplistically thought you had to decide 62 vs FR vs 70 early in the game. Those datapoints just make a convenient way to play initial game of âwhat itâ.
Vanguard did a half-decent job of a high-level description https://personal.vanguard.com/us/insights/article/social-security-timing-082013. The fault lies not with the describers, but rather with the complexity of the system.
There are individual situations that alter the general rules. For example, I have no particular need for my SS now, but when I was 62 yo, I had two children who got a partial benefit as children (<19 yo, HS, unmarried) of an old man. I donât remember the exact numbers, but they received 44 benefit-months that they would not have received if I had waited until FRA. My wife will file at age 70. The kids got $40k+ and I received benefits (albeit reduced benefits). Some people on another site accused me of gaming the system, and it bothered me for a few moments, but I got over it.
If itâs a complicated case, spend the ~$40 to have software figure it out. There are probably free sites also. However, do not expect someone at SSA to figure it out for you. Fwiw, what was figured out for us was:
yes- sorry for typos: file/defer.
Ixnay, what about when there are no minors involved?
I just think your tax rate could go up significantly when you have to take RMDs at 70 1/2, so why hold out for a greater monthly benefit if theyâre going to tax it away?
Maximum benefit in 21015 at age 62 is $2025, at age 70 is $3501. Thatâs a difference of $18K per year, which I think is unlikely to have much impact on your tax rate.
@jym626, in my case, if it werenât for the kids, I probably would have waited. A lot also depends on how long you think youâll live (nobody knows, but family and your condition can provide an educated guess), your spouseâs age and income history, how well-placed the couple (or the surviving spouse) is to finance an exceptionally long life, etc.
While it would be nice to âwinâ by getting the maximum lifetime benefit, the thing youâre really insuring against is outliving your money. We are lucky enough to have sufficient assets to not need help from our kids, even if we live 20 years longer than I expect us to, but we want my wife, whose family tends to live pretty long, to have the safety net of high SS income.
The idea is that you would draw down your tax-deferred accounts from 62 to 70 to fund your life, so your RMDs would be lower when they kick in.
At worst, 85% of SS would be taxed.
Thanks ixnay. We plan to wait, just dont know how how that file defer thing works and if there is any benefit. What is the program you mentioned that we can pay to use?
âMaximum benefit in 21015 at age 62 is $2025, at age 70 is $3501. Thatâs a difference of $18K per year, which I think is unlikely to have much impact on your tax rate.â
Iâm thinking of it in the opposite way. I donât think that SS will significantly impact our tax rate, but I think that having to take RMDâs will impact our tax rates on the SS.
For example, using todayâs tax rates, if we started withdrawing SS at age 62, weâd probably be taxed at the 28% tax rate. So, reading IxnayBobâs post, looks like we pay tax on 85% of our social security. So instead of $2025/person a month, the net for two people after taxes would be $3,087. And you start drawing that eight years earlier.
But if we wait until age 70, when we have to take RMDâs, our tax rate on that SS goes up to 39.6%. Instead of $3500/person a month, the net for two people after taxes would be $4644. For eight years, we will have drawn $296,352, before we turned 70. How old would we have to be to make that up? I figured 190 months, which is almost 16 years. Weâd have to wait until age 86 to make up the difference. Both of us. Plus, what are the odds that SS wonât be means tested, in the next 40 years? That is, if I got my math right.
I think I need to get IxnayBobâs program, but it seems apparent that if your tax rate is going to go up if you wait, you should draw early.
My husband is drawing it early. I mean who knows if the laws will be changing or not, social security might be reduced. So we take what we can while we can is my motto. Iâm waiting until Iâm 66 to get my SS base on my husbandâs earnings and then take mine at 70 base on my earnings. Iâm trying to keep the tax rate low or at least be smart about it. But I donât want to worry that I didnât max out on SS. I have other stuff to worry about. SS is a small potato in the scheme of things.
You can also ask a financial planner at Fidelity or Schwab (wherever you have an account) to do some calculations for you free. Mine does all kinds of calculations that have been discussed here for me.
Yes, should talk to someone or do a program. Though we canât even collect SS for ten more years, so itâs hard to get overly into it. A lot could change in ten years.
jym, lxynayBobâs program is maximizemysocialsecurity.com. I ran it. It semed a lot depends on when you die. I ran a a few scenarios. The difference wasnât so great in my simple case that I decided Iâll take it as soon as possible to get over the paper work.
@iglooo, as you say, a lot depends on your life expectancy. AFAIK, they donât make gender distinctions in their actuarial calculations, so women are somewhat advantaged (I guess thatâs offset by their disadvantage in getting equal pay :)).
I think itâs really useful if there are big spousal age differences, wage history differences, divorces, young children, etc. It is those cases that my eyeballs roll back into my head.
??
The 39.6% bracket for 2015 starts at $464,850. If you have $200K in pensions, that means $7M in IRAs to generate enough taxable income from pensions and RMDs that 85% of your SS would be taxed at 39.6%. Thatâs a lot of savings.
I think Iâve read less than 10,000 people have more than $3 million in IRA account.
^^Our pensions are actually a little greater than that, and our plan is to pay off all debt and live off the pension. But anything can happen in life, and who knows what will happen in the market. But based on the planned scenario, we donât want to do anything obviously wrong, tax wise. Plus, inflation can make what seems like a large number, a much smaller one. Unfortunately, our pensions do not have cost of living adjustments.
The timing for claiming SS is an individual decision. For anyone (as H and I are) trying to reduce income between work stoppage and age 70.5 in order to do Roth conversions, it makes sense to delay, after taking into account taxes on income and the maximum tax on SS. (The side benefit is that we have a ready annuity if/when we do claim at age 70.) Introducing the Roth conversion aspect into the calculations complicates matters, such as whether having a Roth will later help eliminate the surtax on Net Investment Income, etc. and enhance estate planning choices.
I certainly hope that no one here is basing his or her decision on the decision of others and othersâ income needs and tax rates, but on articles and resources uncovered and shared.
It is my understanding also that some argue that the decision whether to file early or delay is actuarially neutral, but that is also unlikely to be the case for each individual:
http://www.nber.org/digest/jul12/w17866.html
Lawrence Kotlikoff is the author of âGet Whatâs Yours,â which has been discussed probably some dozens of pages previously in this thread. Another author who has the endorsement of the Bogleheads is Mike Piper, who has a blog under the unfortunate name of Oblivious Investor (though, understandably, knowing tax and claiming strategies does not equate to picking good investments):
http://www.obliviousinvestor.com/social-securitys-actuarial-neutrality/
http://www.obliviousinvestor.com/3-common-social-security-misunderstandings/
The software @IxnayBob has mentioned using is: http://www.maximizemysocialsecurity.com/
and it strikes me that using that to crunch the numbers for you is well worth the investment, though it does not eliminate having to make oneâs decision based on life expectancy assumptions.
T. Rowe Price also has one, though it is geared towards simpler scenarios for single filers and one-marriage couples:
http://individual.troweprice.com/public/Retail/Retirement/Social-Security-Tool
Whew! Thatâs a lot of thinking for a Sunday morning!
Edited: And, obviously, Iâve been cross-posting with many of you with the same info.
Bus, when are you eligible to take that great pension, I mean what age. You should be alright when you retire, it seems like a great pension.