FIRE in Europe: Qualifying for both US Social Security and EU state pension(s) and how to estimate benefits?

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Topic Author
wineandplaya
Posts: 306
Joined: Fri Sep 14, 2018 9:42 am

Re: FIRE in Europe: Qualifying for both US Social Security and EU state pension(s) and how to estimate benefits?

Post by wineandplaya »

international001 wrote: Fri May 28, 2021 4:21 am I think everything comes back to the same. Plan to have some taxable for the early-in-time distributions. And pre-tax/Roth for the late-in-time distributions.
I'd say that the best strategy is the other way around, at least in the case of Spain. In early retirement, use up much of your pre-tax before your general income tax bracket fills up with Social Security and EU pension(s). Your taxable account is what you want to use throughout your retirement, withdrawing at a safe rate of maybe 4 % per year. Since that rate will exceed your dividend yield, you have tax deferral with your taxable account as well and then pay long term capital gains tax which may be 20 percentage points lower. As for Roth (which is likely to be taxed as general income in Spain), I'd try to move over most of it to taxable before expatriation and leave some of it completely untouched at least until the pre-tax accounts are empty. The lack of RMD might make Roth valuable.
international001
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Re: FIRE in Europe: Qualifying for both US Social Security and EU state pension(s) and how to estimate benefits?

Post by international001 »

Sure.. if you plan to get SS late, then you may distribute from pre-tax to fill your brackets
But still you are loosing some compounding effect. So you have to make your assumptions to find the sweet spot.

Assume a tax cost ration of 0.50%. Over 20 years this means you loose ~10%. As a rough estimation, if your tax brackets difference are higher than this, it would be better to start taking pre-tax early. Or perhaps X amount of pre-tax and Y amount of taxable is the optimal solution. Regardless, you don't have to decide till you have to start taking distributions, so you have time to make your calculations.
Topic Author
wineandplaya
Posts: 306
Joined: Fri Sep 14, 2018 9:42 am

Re: FIRE in Europe: Qualifying for both US Social Security and EU state pension(s) and how to estimate benefits?

Post by wineandplaya »

Back-of-the-envelope for the decision to take Social Security early or late: Assume your Social Security benefit without considering WEP is $20k/yr. With maximum WEP you'd get $14k/yr. Delay until age 70 (factor 1.4) and you'd get about $20k/yr. Take it at age 62 (factor 0.70) and you get $14k/yr from age 62 until you start taking your EU pension, let's assume also age 70, then $10k/yr. Those 8 years of payment correspond to about $112k taxable income. So by delaying Social Security to age 70 you're essentially paying $112k for an additional $10k/yr annuity starting at age 70. Factor in tax rates and you might just be better off taking Social Security as early as possible. Or it's a wash.
Topic Author
wineandplaya
Posts: 306
Joined: Fri Sep 14, 2018 9:42 am

Re: FIRE in Europe: Qualifying for both US Social Security and EU state pension(s) and how to estimate benefits?

Post by wineandplaya »

international001 wrote: Sat May 29, 2021 6:22 am Assume a tax cost ration of 0.50%. Over 20 years this means you loose ~10%.
My hope is to achieve a much lower tax drag than 0.5 % before retirement. I think that should be doable if I buy-and-hold a total international ETF, use foreign tax credits and make use of tax-loss harvesting. Once you retire, your tax drag should go down further since you no longer need to reinvest the dividends. But maybe I'm overly optimistic.
international001
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Re: FIRE in Europe: Qualifying for both US Social Security and EU state pension(s) and how to estimate benefits?

Post by international001 »

wineandplaya wrote: Sat May 29, 2021 1:13 pm Back-of-the-envelope for the decision to take Social Security early or late: Assume your Social Security benefit without considering WEP is $20k/yr. With maximum WEP you'd get $14k/yr. Delay until age 70 (factor 1.4) and you'd get about $20k/yr. Take it at age 62 (factor 0.70) and you get $14k/yr from age 62 until you start taking your EU pension, let's assume also age 70, then $10k/yr. Those 8 years of payment correspond to about $112k taxable income. So by delaying Social Security to age 70 you're essentially paying $112k for an additional $10k/yr annuity starting at age 70. Factor in tax rates and you might just be better off taking Social Security as early as possible. Or it's a wash.
So have you verified it works like this? i.e. you discount the WEP based on the year you get the non-covered pension, and then you multiply by a factor that was set when you starting receiving SS benefits? Then I guess inflation adjusment.

Then you are right. Concentrating the WEP as late as you want may be in your benefit. Still, lots of assumptions to make.
international001
Posts: 2748
Joined: Thu Feb 15, 2018 6:31 pm

Re: FIRE in Europe: Qualifying for both US Social Security and EU state pension(s) and how to estimate benefits?

Post by international001 »

wineandplaya wrote: Sat May 29, 2021 1:33 pm
international001 wrote: Sat May 29, 2021 6:22 am Assume a tax cost ration of 0.50%. Over 20 years this means you loose ~10%.
My hope is to achieve a much lower tax drag than 0.5 % before retirement. I think that should be doable if I buy-and-hold a total international ETF, use foreign tax credits and make use of tax-loss harvesting. Once you retire, your tax drag should go down further since you no longer need to reinvest the dividends. But maybe I'm overly optimistic.
My example was for holding in taxable for 20 years. An approximation if you are spending some.

IF you don't expect the investments to go down, I don't understand how you could do TLH

And about foreign tax credit, you mean the credit you get for an US ETF investing ex-US (like VXUS) for the taxes paid in an ex-US country? I'm not sure how it would work, but unless Spain refunds you those (what I doubt), they are probably gone. So it may be wiser to load up on US investment.

But I'm not sure about that, I guess you can open a thread or search in the archives for info.
Topic Author
wineandplaya
Posts: 306
Joined: Fri Sep 14, 2018 9:42 am

Re: FIRE in Europe: Qualifying for both US Social Security and EU state pension(s) and how to estimate benefits?

Post by wineandplaya »

Moving the discussion on role of tax deferred accounts and taxable accounts when planning expatriation back here: viewtopic.php?p=6040196#p6040196
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