I could see how losing his check or any unexpected financial event can be disconcerting when you are already retired. Even a good thing, like a windfall, can have an unsettling feeling. My parents, like many others, like to have a steady stream of income—so any change-even positive-would throw them for a loop.
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Exactly. She doesn’t do well with change, but she’s doing fine. She never spends more than she brings in a month, even the reduced amount, but I can see where the drop in income feels scary. Her house is paid off, and she still has TriCare insurance so she is just fine. She doesn’t want to touch her savings because she wants to leave it all to us, plus she has a house and land. She is in great financial shape for someone who didn’t go to HS. My dad didn’t either. They did a great job managing their money. 
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I was able to drop in my calculated benefits amounts here and find my break even points for taking social security at either 62, 67 (my full retirement age), or 70. Just for reference, my break even age for retiring at 62 is 77.5. if I think I’ll live longer than that I should wait until 67 to retire. If I delay taking retirement until 70 I’d have to live until 79 to make more money than if I retire at 62 and live until 82 to make more money than if I retire at 67. YMMV.
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I will have to check this out. I’ve looked for a long time to try to find something like this. My husband is almost 10 years old than me. I don’t think in our case it’s even worth it for me to try to wait to take my social security as we will want to try to collect two for as long as possible. Not to mention if it’s even here by then, although they’ve been saying that since I was a kid, and look, it’s still here, although the way the congress (both sides) just keep kicking the can down the road then blaming one another, I will not be surprised when it’s gone.
Can you explain your comment about tax deferred accounts negating the benefit of the back door Roth? I’m really trying to learn more about this area, figure out if we could continue to do back door Roth’s, and if I should do a conversion, and if so, when to get the most favorable tax and Medicare impact. (We have also discussed moving to another state, and if we do that my withdrawals would be state tax free, so that would likely be the ideal time). I know it’s a “first world/good problem” to have, but we may wind up paying more taxes as retirees than we did working.
big fan of Open Social Security, a free site. Click the Additional Info button at the top. It will recommend the “best” Present Value of a mortality-adjusted benefit.
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It’s due to the pro-rata rule.
Let’s say you have $245,000 in a regular, tax-deferred IRA.
Now you contribute $5,000 to an after-tax IRA, for a total of $250,000 in your IRAs. You paid taxes on the $5,000, let’s say at a 30% rate, so $1,500.
Now you want to do a backdoor Roth conversion of the after-tax IRA. Unfortunately, you don’t get to choose which IRA dollars are distributed for the conversion. The IRS considers the money to have been taken equally from all IRA sources.
In this case, since 2% of your total was in the after-tax IRA, and 98% in the pre-tax IRA, only 2% of the Roth money ($100) is considered to come from the after-tax IRA, and 98% ($4900) is considered to come from the pre-tax IRA. You have to pay taxes on that $4900 since it is a distribution from a pre-tax IRA, at 30% that is $1470.
So the net result is you’ve paid $2970, or 59.4%, in taxes to convert $5K to a Roth. Yes you now have $4900 in an after-tax IRA (whose earnings will be taxable eventually), but this is probably not what you are looking for. You are better off adding that $5K to a pre-tax IRA and just converting a piece of it.
Notes - 1. IRAs are always individually owned so only your IRA balances count in calculating the pro-rata shares, not your spouse’s; 2. You have to wait until Dec. 31 of the tax year to get the balances for calculating the pro-rata shares, regardless of when the conversion is done; 3. You are doomed to fill out form 8606 for all of eternity; 4. 401(k) and 403(b) balances are not considered in the pro-rata calculations; 5. There’s a few other edge cases like inherited IRAs.
Disclaimer: I am not a tax pro, although I believe this is all correct.
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That certainly was easy!
Yes - when looking at SS beware of the “windfall” provisions. Any amount of government pension reduces your SS. If pension is high enough, it eliminates it. Many calculators do not ask for this info and take it into account.
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SS planning can get tricky because so many variations of spousal benefit. This link has some examples - What's Your Strategy for Maximizing Your Social Security Benefits? | Kiplinger
One financial planner we talked to had a much younger, healthier wife who had very little earning history of her own. His strategy was to defer SS as long as possible to optimize her spousal benefit if she outlives him.
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Several posters here asked for more info about Vanguard Personal Advisor Service. Here’s a review I just found on my phone:
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Thanks for taking the time to explain. I HOPE I’M Ok, because I have no other IRAs. But I will definitely bring it up (again) to the guy who manages some of my money.
As far as I’m aware, anyone in the FERS federal pension system gets both a federal pension and social security.
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@mom60 the Roth IRA money should IMHO go into IRA Roth higher risk/return stock fund (not single stock, but stock fund that is doing well). In retirement, those funds would be used last because all the accumulated value is tax free upon withdrawal - and over time choosing from a very good stock fund will outperform these other types of investment choices.
All the other savings keep in own investment funds - may want to keep somewhat liquid for home purchase or if there is going to be a sizable purchase.
DH and I just completed a refresher course on “Retirement Planning Today”. I just finished figuring out our Medicare choices - which I can trigger in July – will go from company supported health insurance for H and I to both of us on Medicare (H has Medicare A until we both finish on our group health insurance the end of Sept). We will both have the same health and drug plan with total cost of $728.40/month for both of us – choosing Medigap Supplemental G and the lowest of 3 drug plans that go with that since we have so few medications and all current ones are generic or near generic pricing. The different between lowest cost ‘essential’ and next level ‘enhanced’ is $600/year for each of us. We will get low copays at the standard network pharmacy which included both of our area 24 hour pharmacies (one which we use now which is very close/convenient). The Part B annual deductible is $203; the Drug plan has $445 deductible for each of us before cost sharing - but that is in there for the ‘enhanced’ plan too. Each year choosing a drug plan can change with our needs. I could possibly have a lower cost drug plan (27 county specific and 32 others state specific – but typically the drug plan goes together with the Medigap or the Medicare Advantage plan).
Medicare Part B is currently $148.50 each. We pay $0 for Medicare A due to having participated in payments for plan with company (FICA).
Since this is a bit about money used in retirement, it deserved its own thread (since the prior one was closed in 2019 on the topic - so I named it "64 and Need to Look Into Medicare (Part 2) "
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@MarylandJOE that AARP calculator isn’t bad, but we know what our full SS amount will be based on current info with SSA, but don’t know how to calculate the ‘penalty’ amount prior to full retirement age. For us, full retirement age is 66 and 4 months.
However we are going to schedule with our FA to see what our options are with various scenarios on us and when we should begin taking SS payments before full retirement. We financially do better not delaying after full retirement age, but want to see what the penalty amounts are and how much early we will take money with SS.
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@oldmom4896 I agree 100% one needs to align investments with the risk level one has. Our FA has a tool that he used, and he had options over time that helped reduce our risk.
As with others on this thread, we have money in a 401k outside of what FA manages, because H’s company pays the fees, and we have broad investment choices and have done very well with the choices we have had. I have a small 401k with my employer (as I started working with them only a few years ago and only put in 4% as they matched 4%) - and I don’t work FT hours; which I probably will cash out since we will be retired and maybe will be delaying SS into 2022.
In addition to the risk tolerance management, we had a lot of loose end investments - IRAs, Roth IRAs, SAR-SEP, etc. Over time we have a much better managed portfolio. Now we have Roth IRAs and Annuities under FA. Converted quite a bit of 401k into 10 and 12 year annuities which lowered our risk while giving us much better returns than with bonds.
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@srparent15 you set up your own ssa.gov account with H also setting up ssa.gov
account and get direct information on your earning years and get a current social security statement which tells you what your payment will be “about” $______ a month at full retirement, and will give you an amount “at current age”. A bit more accurate. I plan to keep checking over the next few months to see how much “at current age” changes. H is not longer earning money, but I am, so my payment at full retirement age may change some too.
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@deb922 It was a shame that your mom had no years or not enough years in SS to get half of her H’s SS for her benefit and then higher amount after his death.
I use to work for 3 male MDs, and two had SAH wives. Well they ‘paid’ the minimum for their wives to be paid for and qualify for SS (they paid out of their bonus $$ so it was fair to MD #3 whose own wife was also a MD). That way their wives got SS and also their SS monthly upon H’s death.
It looks like I will have a SS amount more than half of DH’s amount based on my earnings due to returning to work with 18 year gap of income – as SS takes certain number of high earning years in their calculations.
It’s not hard to figure out the “penalties” for taking SS early. The numbers are in the link below. If you have a FA may as well let them show you though. Right now I’m leaning towards taking mine earlier to start getting that money before it’s gone/reduced. I fully expect for SS to be modified heavily for those that have saved otherwise.
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