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Re: using savings for a year to increase social security?

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Message 1 of 16

 

I see a lot of people asking in this and other forums about what is the best age to take Social Security. The "best" probably has different meanings to different people as they are considering different issues.

 

Some of the issues to consider for "best" include:

 

  • maximize the amount of money you get back from SS before you die
  • maximize your total disposable income, which is the amount of money that you have to spend after paying any income taxes
  • leaving a larger inheritance to your heirs
  • maintaining an unencumbered pool of cash ready-at-hand for whatever reason
  • taking care of your spouse once you pass (they may be entitled to survivor's benefits)


A lot of people (forum posters and journalists) focus on the "breakeven point", the age at which taking Social Security benefits at various ages, say, at 62 and 66, with different monthly amounts, then sum to a total value that is equal at the breakeven point in the future. They then consider if they expect to live that long or not. Personally, I consider this to be a short-sighted view and improper consideration. Critically, it ignores your spouse's potential survivor's financial security. And it ignores any heirs that you may care about.

 

But the original poster's question here presents the question very nicely, how to consider the effect of taking benefits now or later, and how this impacts his total situation.

 

Rather than break-even points, etc, to me, the most important consideration is your total disposable income throughout your retirement years. Remember this, your disposable income each year.

 

Your disposable income comes from all your income sources (remember the "3 legged stool" of Social Security?), including: Social Security, pensions, IRAs, personal savings, income from working, etc. These income streams can interact with each other when tax time comes. Make too much money from other streams and your Social Security can be taxed. Medicare premiums can be impacted as well by the IRMAA amount for those with higher incomes. And don't forget the RMDs on IRAs.


The result of the different taxation on the different income streams and how they interact with each other presents a very complex arithmetic problem. You can create a fancy electronic spreadsheet to perform all the arithmetic automatically, or you can suffer through with a pad of paper (full pad, please) and pencil. There are many computer programs that consider this problem as well; there are tons of them available on the internet from investment companies, banks, etc; typically those companies that want to make money off you by managing your money. There are also some companies that sell the software only. I am skeptical of most of the programs that I have seen myself, as something always seems to be missing.

 

However, the very best program that I have seen is available for free (and I am not associated with it except as a user). This is the "i-ORP" program, for "internet" and "Optimal Retirement Planner" at www.i-orp.com. This beauty of a program runs in your browser and considers many different types of accounts and their taxation methods. Using the long form input sheet can be overwhelming at first but I recommend this over the short form, particularly for those in or right at retirement.

 

I have run ORP for a simple case based on the description of the OP's situation but changing the claiming of Social Security to ages 64, 66, and 70. My case includes a current age of the retiree of 63. I assumed that the SS PIA was 20K per year (so, 20K at 66 FRA, adjusted for the correct factors for ages 64 and 70), pension of 24K per year. Plus personal savings of 120K earning the 2.2% per year. For sake of argument I entered inflation values of 0% for both income and expenses. I set the expected age of death at 92 (the program's default value). There is no spouse in my sample.

 

The program reports the Disposable Income available each year after paying income taxes and possible IRMAA. The program works to maximize the distribution of income across the years of retirement. The maximum income is found by optimizing the withdrawals from each account (Roth, IRA, savings, etc) and including pensions and Social Security.

 

The results for my sample problem are:

 

SS age Disposable Income

 

  • 64 $40,000
  • 66 $41,000
  • 70 $41,000

 

It's interesting and instructive to review the detail output reports of the program to see how the amounts are taken from different sources for each year of retirement.

 

The conclusion here for this very simple example is that there is little difference in the yearly disposable income; although it is true that taking Social Security early definitely provides lesser disposable spending. Now the results might vary if the pension was not so high. Or is personal savings was not so high (or was much higher).

 

It's been my own experience for my own situation that there is little difference in taking my Social Security benefit at 68 or 70 (or in-between). But I will wait until 70 so that my survivor's benefit is maximized (meaning that my widow will be more secure).

 

There are many other issues to consider. What about possible reduction in benefits that they're talking about in 20 year? (ORP considers this too). Maybe you don't want to spend the same amount of money each year for all of retirement, maybe it should vary... there are TONS of different retiree spending models discussed in scholarly papers and monthly magazines; ORP provides some controls to vary the spending model.

 

The important thing to consider is your real disposable income. This is the result of the complex interaction of all income streams and their taxation. It is naive to just view Social Security in isolation. ORP is a great tool to use for this study.

 

 

 

 

 

 

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Re: using savings for a year to increase social security?

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Message 2 of 16

I have studied this question a lot for my own situation.

The important consideration is how much "disposable income" you will have each year in retirement. This will come from the streams of SS, pension, and personal savings. The question of "disposable income" is much more important than is the question "when" to draw SS...although the "when" certainly comes into play.

 

A free online tool to determine your disposable income during retirement is the "Optimizing Retirement Planner" at www.i-orp.com. Yes, it's free and in my opinion it is as good as they come. The author spent his working career with these "optimizing" routines.

I have run simple cases in ORP and for many cases I find that the difference in disposable income between cases with differing SS claim ages is quite minimal but the advantage does go to taking SS at FRA or later. Sure, you have to draw on personal savings until FRA if you have quit work early and this is disconcerting (so early in the game) but down the road it evens out.

I've written a fuller discussion on this that I will post but I wanted to post the "short version" first.  

 

 


@KennethS638670 wrote:

 

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Re: using savings for a year to increase social security?

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Message 3 of 16

After rreading your post  I am in the same boat. I retired at age 55 and have been living off my pension  for the last 8 years. At age 65 when i need to apply for medicare  I will draw 12 mos. off my deferred comp to pay for health insurance, and to keep my quality of life the same. At age 66 and 2 mos. I will draw my social security and that will cover the amount I need for my medical insurance and even a few dollars more then my pension. My advice to you is if  your feeling comfortable in your finicial situation then wait until your retiment age and get all the benefits your entitled to. No your not spinning your wheels its a big decision to make and its only a year of savings that is what they are there for     good luck hope this helps

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Re: using savings for a year to increase social security?

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Message 4 of 16

30,000 ft view.  The average person isn't really gaining anything by waiting until 70 to claim.  Yes, your monthly benefit is more but you forgo 4-8 years of benefits in doing so.  The benefit is actualrially calculated to be the same over time if you die at an average age.  If you think you may die before the average lifespan, then taking your benefit early will net you more money.  If you think you will outlive the average age, then delayinying claiming will net you more money.

 

Delaying benefits can also be viewed as an insurance policy against longevity.

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Re: using savings for a year to increase social security?

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Message 5 of 16

Get it as soon as you can or you may not get it at all.  A bird in the hand is worth two in the bush!

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Re: using savings for a year to increase social security?

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Message 6 of 16
but I'm not applying early by the time I start receiving benefits I will be 66 and that is my social security full retirement age. I'm just not waiting till 70. also I will be collecting my paycheck till I retire in april of 2020.along with ss.
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Re: using savings for a year to increase social security?

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Message 7 of 16

It sounds like you're not sure if you made the right decision to file for SSA Benefits early? And, it sounds like you're basing your decision on the potential amount of interest earnings on the SSA Benefits if you were to put it into savings?

The SSA Benefit amount you lose by filing early is way more than any interest you might earn [2.2% APR] on the reduced Benefit amount. So, this is not a good measure to base your decision on. It's more financial advantageous if you can wait longer to file for SSA Benefits.

Most people file early because of a shortage of funds and need to boost retirement income to meet monthly expenses.

I understand that the 8% increase in SSA Benefits is after your Full Retirement AGE [age 66] up to when you reach age 70. So, its for 4 years. You probably know that you can withdraw your SSA application for up to 12 months after filing, the caveat is that you have to pay back the SSA benefits you received [up to 12 months of benefits]. If I'm wrong, I apologize.

 

 

 

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Re: using savings for a year to increase social security?

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Message 8 of 16
Thank goodness we have options - sounds like you picked the best for your situation.
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Re: using savings for a year to increase social security?

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Message 9 of 16

That is why it is so important for each of us to consider our own circumstances.  "One size does NOT fit all".  My goal is to have the highest SS income once I turn 70 which for me is a difference of $1,000 per month compared to what I would have received at age 66. I still have the option of working some if I want but so far I haven't wanted to.

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Re: using savings for a year to increase social security?

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Message 10 of 16

I'M RETIRING IN APRIL OF 2020. I ALREADY SIGNED UP CAUSE I AM HITTING 66 [FRA] THIS YEAR AND FOUND OUT I CAN COLLECT AND EARN MY PAYCHECK [YES IT WILL UP MY TAX BRACKET BUT NO STATE AND CITY ON SOC SEC JUST FEDERAL TAx. I WILL BE IN GREAT SHAPE WITH MY SAVINGS. ONCE MY SS CHECKS STARET IN DEC I WILL BE 66 IN NOV.  SO I HAVE NO NEED TO DELAY SS FOR A YEAR.

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