Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by iim7V7IM7 »

I am age 61 and my spouse is also 61 (+ 6 months). We are about 4-years from a planned retirement targeted for 3Q 2026. My income is significantly higher than hers and a number of Social Security calculators recommend her taking it at age 65 and 2 months (~$25,000/year @ 86.7% PIA) and for me to defer to age 70 (~$50,000/year @ 124% PIA). I am looking at a number of options to fund from 2H 2026 through 1H 2031 (5-years) and I am trying to determine the best option.

At age 65 along with her Social Security I will have a company pension (no-COLA). The rest of our income will come from our ~3.3M investment portfolio. Our portfolio will be proportioned approximately:

51% - His IRA
36% - Her IRA
5% - His Roth IRA
8% - His Brokerage

87% of our portfolio based income is tax-deferred (taxed as income), 8% taxable (mostly LT cap gains) and 5% tax free. My deferred Social Security is equal to about 18% of our total income.

The reliable income (Pension and both Social Securities) equates to 52% of our retirement income. Until we can claim my SSA our reliable income is about 55% of our essential expenses and after my SSA begins it increases to about 85% f our essential expenses.

In terms overall income perspective:

25% - His Pension @ 65
18% - His SSA @ 70
9% - Her SSA @ 65
52% Reliable Income

25% - His IRA @ 65
17% - Her IRA @ 65
2% - His Roth IRA @ 65
4% - His Brokerage @ 65
48% Portfolio Income

I was hoping during the years from 65 to 70 to enjoy travel and have high discretionary expenses. I could certainly take SSA at age 67 and reduce the funding gap from about $250,000 to $100,000. At my PIA the income would still fund our goals, but leaving an extra $10,000/year in a COLA annuity (SSA) is not easy to leave on the table.

The IRAs would draw down our eventual RMD but would be taxed as income. The Brokerage is mostly LT cap gains which are taxed lower and the Roth while not enough to fund the gap is tax free. Part of me thinks it might be better to leave the Roth alone let it grow tax free.

Given these three types of savings and their tax status, how would you recommend we fund the deferral or is it better to just both take our SSA at our PIAs of age 67?
sailaway
Posts: 8215
Joined: Fri May 12, 2017 1:11 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by sailaway »

I would start drawing down the traditional to even out taxes over time.
MattB
Posts: 1228
Joined: Fri May 28, 2021 12:27 am

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by MattB »

sailaway wrote: Tue Aug 16, 2022 2:15 pm I would start drawing down the traditional to even out taxes over time.
+1

You will have to run your specific numbers, but one or both of you may face significant income taxes once RMDs come. Drawing funds from your traditional IRAs between now and then could help reduce your long-term tax costs.

You might even consider Roth conversions up to a point. Though there is no way to calculate optimal amounts given uncertainty the future.
testing321
Posts: 295
Joined: Sat Oct 25, 2014 6:46 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by testing321 »

I rolled over my 401K into one of my IRAs and then withdrew from the IRA. I also did some consulting which allowed me to deduct medical and dental premiums. Wife took SS at age 65 and I took it at age 70. I am very happy with how this worked out.
WhiteMaxima
Posts: 3338
Joined: Thu May 19, 2016 5:04 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by WhiteMaxima »

HELOC + Roth conversion
Last edited by WhiteMaxima on Tue Aug 16, 2022 2:49 pm, edited 1 time in total.
User avatar
Kenkat
Posts: 9549
Joined: Thu Mar 01, 2007 10:18 am
Location: Cincinnati, OH

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by Kenkat »

I would agree with the previous comments to draw down your IRA accounts to fund the span from age 65 to 70. Based on the size of your portfolio, you are likely looking at RMDs of $100k+ starting at age 72. That plus pension income and social security income will push you into higher tax brackets, so reducing the tax deferred accounts now makes the most sense.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by delamer »

Your post would be easier to follow if you used dollar values for your expenses and income. You imply that you expect expenses to decline at age 70+, but it’s a bit hazy. Portfolio income is not the same thing as withdrawals needed from your portfolio, but it seems that you might be using them interchangeably.

This is the template —

Pre-age 70:

Total expenses minus fixed income equals needed portfolio withdrawals

Age 70+:

Total expenses minus fixed income equals portfolio withdrawals

Your legacy goals, IRMAA, and NIIT are factors to consider in your decision, plus the expenses/income of the surviving spouse following the first death.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by iim7V7IM7 »

~ $1,700,000 - His IRA
~ $1,200,000 - Her IRA
~ $150,000 - His IRA
~ $250,000 - His Brokerage

Reliable Income
~$68,000/year - His Pension @ 65
~ $50,000/year - His SSA @ 70
~ $25,000/year - Her SSA @ 65

What I was saying is while we substitute paying for my SSA deferral between age 65 to 70, The reliable income (~$93,000/year) represents about 55% of the estimated $170,000/year of income required to pay for ~ $140,000/year of essential expenses. Once SSA comes online at age 70, the reliable income is now ~$143,000/year or about 85% of the $170,000/year of income. Our discretionary expenses are estimated to be ~ $65,000/year requiring ~ $80,000/year of income. So when my SSA benefit starts we need about $107,000/year from our portfolio. During the first 5-years we will need about $157,000/year without my SSA.

It sounds like drawing from the IRAs would be the first choice with some Roth Conversions. The marginal bracket goes up to $340,000/year, but the IRMAA will increase much lower. We have minimal legacy requirements with no children.
delamer wrote: Tue Aug 16, 2022 3:18 pm Your post would be easier to follow if you used dollar values for your expenses and income. You imply that you expect expenses to decline at age 70+, but it’s a bit hazy. Portfolio income is not the same thing as withdrawals needed from your portfolio, but it seems that you might be using them interchangeably.

This is the template —

Pre-age 70:

Total expenses minus fixed income equals needed portfolio withdrawals

Age 70+:

Total expenses minus fixed income equals portfolio withdrawals

Your legacy goals, IRMAA, and NIIT are factors to consider in your decision, plus the expenses/income of the surviving spouse following the first death.
User avatar
David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by David Jay »

Are you clear on the reason why the various calculators recommend that you defer until age 70?

The reason is that your (larger) benefit will become the amount of the survivor's benefit, regardless of which spouse passes first. Your deferral will result in a bigger payment until the second spouse passes. This is a very good bet because, between the two of you, the actuarial tables suggest that one will live into their late 90s.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
protagonist
Posts: 9277
Joined: Sun Dec 26, 2010 11:47 am

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by protagonist »

iim7V7IM7 wrote: Tue Aug 16, 2022 5:28 pm ~ $1,700,000 - His IRA
~ $1,200,000 - Her IRA
~ $150,000 - His IRA
~ $250,000 - His Brokerage

Reliable Income
~$68,000/year - His Pension @ 65
~ $50,000/year - His SSA @ 70
~ $25,000/year - Her SSA @ 65

With that much assets, why would you both not defer taking SS until age 70 and benefit from the 8% real bump you would receive annually? You have plenty of money to support yourselves until then...I don't see why you would need to take SS earlier.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by delamer »

Reducing future RMDs via Roth conversions is the most valuable when you don’t expect to need to withdraw from your IRA to cover expenses. Or you expect to need to withdraw a lot less than the RMD.

Since that is not the case for you, then Roth conversions aren’t something I’d prioritize.

This advice is dependent on how your portfolio performs and how concerned you are about marginal rates for the surviving spouse.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by iim7V7IM7 »

I suppose because I was just listening to what the Social Security calculator was saying was optimal for us (e.g., ages 65 and 70). I think it is taking into account disparities in our incomes and actuarial estimates in life expectancy. We would be withdrawing an extra $25,000/year for 5 years to do as you suggest for an extra $11,000/year with future CPI that would disappear upon my death when she would take my survivor benefit which is higher. I think it is after age 75/76 where you would begin to come ahead. I will consider it.
protagonist wrote: Tue Aug 16, 2022 8:24 pm
iim7V7IM7 wrote: Tue Aug 16, 2022 5:28 pm ~ $1,700,000 - His IRA
~ $1,200,000 - Her IRA
~ $150,000 - His IRA
~ $250,000 - His Brokerage

Reliable Income
~$68,000/year - His Pension @ 65
~ $50,000/year - His SSA @ 70
~ $25,000/year - Her SSA @ 65

With that much assets, why would you both not defer taking SS until age 70 and benefit from the 8% real bump you would receive annually? You have plenty of money to support yourselves until then...I don't see why you would need to take SS earlier.
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by iim7V7IM7 »

Thank you.
delamer wrote: Tue Aug 16, 2022 8:44 pm Reducing future RMDs via Roth conversions is the most valuable when you don’t expect to need to withdraw from your IRA to cover expenses. Or you expect to need to withdraw a lot less than the RMD.

Since that is not the case for you, then Roth conversions aren’t something I’d prioritize.

This advice is dependent on how your portfolio performs and how concerned you are about marginal rates for the surviving spouse.
protagonist
Posts: 9277
Joined: Sun Dec 26, 2010 11:47 am

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by protagonist »

iim7V7IM7 wrote: Wed Aug 17, 2022 6:08 am I suppose because I was just listening to what the Social Security calculator was saying was optimal for us (e.g., ages 65 and 70). I think it is taking into account disparities in our incomes and actuarial estimates in life expectancy. We would be withdrawing an extra $25,000/year for 5 years to do as you suggest for an extra $11,000/year with future CPI that would disappear upon my death when she would take my survivor benefit which is higher. I think it is after age 75/76 where you would begin to come ahead. I will consider it.
protagonist wrote: Tue Aug 16, 2022 8:24 pm
iim7V7IM7 wrote: Tue Aug 16, 2022 5:28 pm ~ $1,700,000 - His IRA
~ $1,200,000 - Her IRA
~ $150,000 - His IRA
~ $250,000 - His Brokerage

Reliable Income
~$68,000/year - His Pension @ 65
~ $50,000/year - His SSA @ 70
~ $25,000/year - Her SSA @ 65

With that much assets, why would you both not defer taking SS until age 70 and benefit from the 8% real bump you would receive annually? You have plenty of money to support yourselves until then...I don't see why you would need to take SS earlier.
As for when to take SS, following is a reprint of my post on this topic from years ago....regulars are probably tired of reading this but if you think like me it might be of use to you:

Consider the fate of two retirees, Rich and Delores. Both retire at age 62....let's say they were both laid off and cannot find additional work.

At time of retirement, Rich has $1,000,000 in financial assets. (Rich is like you but you are richer than him). Delores has $10,000. Both would receive $20K/year from SS if they started benefits at age 62 and $35K/yr if they wait to age 70.

Delores' decision is simple. She needs to start benefits at 62 for survival.

Rich's decision is also simple. He should definitely wait until 70. Rich has plenty of savings to fund his early retirement. His concern is whether, due to unexpected financial reversal or whatever, he will still have enough money to live comfortably when and if he makes it to 85 or 90 or 95. If Rich dies suddenly at 71, he loses out big time on "overall benefits" by waiting until 70, but he dies happily with a happy retirement and peace of mind. On the other hand, if he lives a long time and if he runs out of money before he dies, he can still live much more comfortably on $35K/year than on $20K/year. So no matter when he dies or what the "break even point" is, he has way more peace of mind by deferring and a happier retirement.

If you have enough money to fund your early retirement, defer SS as long as possible. If not, start taking it whenever you feel you really need it to avoid significant immediate lifestyle compromise. It's that simple. Forget about break even ages, maximizing benefits in an unknown world, etc. What you should care about is minimizing lifestyle compromise and worry. This is a point that I think is crucial in much financial decision-making and is lost on many people who simply rely on the math. "Worry" is not simply quantifiable.

A huge mistake I humbly believe that many people make on this site is equating "maximum wealth" with "happiness" and "better life"...the latter is much more correlated with peace of mind. In that context, deciding when to start benefits is easy.

He who dies with the most toys does not always win. He who dies happily and in peace does.
User avatar
David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by David Jay »

iim7V7IM7 wrote: Wed Aug 17, 2022 6:08 am I suppose because I was just listening to what the Social Security calculator was saying was optimal for us (e.g., ages 65 and 70). I think it is taking into account disparities in our incomes and actuarial estimates in life expectancy. We would be withdrawing an extra $25,000/year for 5 years to do as you suggest for an extra $11,000/year with future CPI that would disappear upon my death when she would take my survivor benefit which is higher. I think it is after age 75/76 where you would begin to come ahead. I will consider it.
I agree with your choice. The "first-to-pass" constraint on the lower benefit really reduces the actuarial numbers. I would take the $125,000 during the period after retirement when you are deferring. This is what we did - spouse has claimed and I am deferring.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
howard71
Posts: 478
Joined: Wed Oct 28, 2020 11:10 am

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by howard71 »

We lived frugally a few years before my anticipated retirement and managed to put enough cash in a taxable account to cover the gap. Didn't want to retire but was forced to at 67 and fortunately had more than enough to do it.
User avatar
busdriver
Posts: 257
Joined: Thu Apr 10, 2014 8:57 am
Location: Vancouver, WA

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by busdriver »

iim7V7IM7 wrote: Tue Aug 16, 2022 2:13 pm
At age 65 along with her Social Security I will have a company pension (no-COLA). The rest of our income will come from our ~3.3M investment portfolio.
Would delaying the pension increase the amount paid?

I retired at 65 and have been living off taxable funds initially, now IRA funds for the last few years along with making Roth conversions to reduce future RMD's. By waiting until 70 to draw SS and pension, (also no-COLA), both increase significantly.
Jeepergeo
Posts: 876
Joined: Sun Dec 20, 2020 1:33 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by Jeepergeo »

protagonist wrote: Wed Aug 17, 2022 10:12 am
iim7V7IM7 wrote: Wed Aug 17, 2022 6:08 am I suppose because I was just listening to what the Social Security calculator was saying was optimal for us (e.g., ages 65 and 70). I think it is taking into account disparities in our incomes and actuarial estimates in life expectancy. We would be withdrawing an extra $25,000/year for 5 years to do as you suggest for an extra $11,000/year with future CPI that would disappear upon my death when she would take my survivor benefit which is higher. I think it is after age 75/76 where you would begin to come ahead. I will consider it.
protagonist wrote: Tue Aug 16, 2022 8:24 pm
iim7V7IM7 wrote: Tue Aug 16, 2022 5:28 pm ~ $1,700,000 - His IRA
~ $1,200,000 - Her IRA
~ $150,000 - His IRA
~ $250,000 - His Brokerage

Reliable Income
~$68,000/year - His Pension @ 65
~ $50,000/year - His SSA @ 70
~ $25,000/year - Her SSA @ 65

With that much assets, why would you both not defer taking SS until age 70 and benefit from the 8% real bump you would receive annually? You have plenty of money to support yourselves until then...I don't see why you would need to take SS earlier.
As for when to take SS, following is a reprint of my post on this topic from years ago....regulars are probably tired of reading this but if you think like me it might be of use to you:

Consider the fate of two retirees, Rich and Delores. Both retire at age 62....let's say they were both laid off and cannot find additional work.

At time of retirement, Rich has $1,000,000 in financial assets. (Rich is like you but you are richer than him). Delores has $10,000. Both would receive $20K/year from SS if they started benefits at age 62 and $35K/yr if they wait to age 70.

Delores' decision is simple. She needs to start benefits at 62 for survival.

Rich's decision is also simple. He should definitely wait until 70. Rich has plenty of savings to fund his early retirement. His concern is whether, due to unexpected financial reversal or whatever, he will still have enough money to live comfortably when and if he makes it to 85 or 90 or 95. If Rich dies suddenly at 71, he loses out big time on "overall benefits" by waiting until 70, but he dies happily with a happy retirement and peace of mind. On the other hand, if he lives a long time and if he runs out of money before he dies, he can still live much more comfortably on $35K/year than on $20K/year. So no matter when he dies or what the "break even point" is, he has way more peace of mind by deferring and a happier retirement.

If you have enough money to fund your early retirement, defer SS as long as possible. If not, start taking it whenever you feel you really need it to avoid significant immediate lifestyle compromise. It's that simple. Forget about break even ages, maximizing benefits in an unknown world, etc. What you should care about is minimizing lifestyle compromise and worry. This is a point that I think is crucial in much financial decision-making and is lost on many people who simply rely on the math. "Worry" is not simply quantifiable.

A huge mistake I humbly believe that many people make on this site is equating "maximum wealth" with "happiness" and "better life"...the latter is much more correlated with peace of mind. In that context, deciding when to start benefits is easy.

He who dies with the most toys does not always win. He who dies happily and in peace does.
I had not seen this write-up before. It provides a useful viewpoint. Thanks for reposting it.
fyre4ce
Posts: 2544
Joined: Sun Aug 06, 2017 11:29 am

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by fyre4ce »

I made a crude spreadsheet for your situation. With that large pre-tax IRA and not much other taxable income, it's pretty obvious your best bet for funding age 65-70 is with pre-tax withdrawals. $70k/year withdrawals will just about meet your income need of $140k/year, and you'll be in either the 22% or 25% bracket, depending on whether the TCJA rates are allowed to sunset by Congress.

The bigger question is, should you do any Roth conversions between age 65-70 to get your pre-tax balance down? By my math, if your investments grow at 4% real, you'll either be in the 24% bracket (if rates don't sunset) or around the 25/33% boundary if they do. But you'll know this by the time you retire, because the change is scheduled for 2025, to be effective for tax year 2026. If the rates don't sunset, I'd suggest converting to the top of the 24% bracket. It will protect you in the case of the early death of a spouse, and lock in a historically good rate. It will depend somewhat on what your estate plan is. If you have lots of low-income heirs who would prefer to inherit more pre-tax money than a smaller amount of Roth money, convert less. If you have higher-income heirs and/or a small number of heirs who would face a big tax bill by needing to empty a ~$3-4M pre-tax IRA in 10 years, convert more.

If the TCJA rates sunset, you'll have a little room in the 25% bracket, and most conversions will be done in the 28% bracket. But, RMDs could push you into the 33% bracket, so the conversion choice is similar but with higher rates on both sides.

Also, if you are able to contribute to retirement accounts as Roth for the next 4 years at 24% or less I would definitely do it, rather than add more to the pre-tax accounts. If you're in the 32% bracket for the next four years, I would go pre-tax.
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by iim7V7IM7 »

Thanks for sharing your thoughts:

My only ability to contribute to a Roth IRA while I am working is through the Mega Backdoor rollover of after tax dollars contributed to my 401k. The max in my plan for total pre-tax and post-tax contributions this year is $67,500. This year, I use $27,500 (pre-tax) with about an $11,000 company match). My post match contributions will be on the order of $25,000. I expect to do similar for the next 3 years but in my retirement year

We have no children and we both have one sibling (mine is younger and her's is older) so aside from that, some charities and some friends so our legacy requirements are minimal.
fyre4ce wrote: Thu Aug 18, 2022 1:30 am I made a crude spreadsheet for your situation. With that large pre-tax IRA and not much other taxable income, it's pretty obvious your best bet for funding age 65-70 is with pre-tax withdrawals. $70k/year withdrawals will just about meet your income need of $140k/year, and you'll be in either the 22% or 25% bracket, depending on whether the TCJA rates are allowed to sunset by Congress.

The bigger question is, should you do any Roth conversions between age 65-70 to get your pre-tax balance down? By my math, if your investments grow at 4% real, you'll either be in the 24% bracket (if rates don't sunset) or around the 25/33% boundary if they do. But you'll know this by the time you retire, because the change is scheduled for 2025, to be effective for tax year 2026. If the rates don't sunset, I'd suggest converting to the top of the 24% bracket. It will protect you in the case of the early death of a spouse, and lock in a historically good rate. It will depend somewhat on what your estate plan is. If you have lots of low-income heirs who would prefer to inherit more pre-tax money than a smaller amount of Roth money, convert less. If you have higher-income heirs and/or a small number of heirs who would face a big tax bill by needing to empty a ~$3-4M pre-tax IRA in 10 years, convert more.

If the TCJA rates sunset, you'll have a little room in the 25% bracket, and most conversions will be done in the 28% bracket. But, RMDs could push you into the 33% bracket, so the conversion choice is similar but with higher rates on both sides.

Also, if you are able to contribute to retirement accounts as Roth for the next 4 years at 24% or less I would definitely do it, rather than add more to the pre-tax accounts. If you're in the 32% bracket for the next four years, I would go pre-tax.
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by iim7V7IM7 »

It is an excellent question. The online calculator does not seem to let me put in a retirement date and an offset pension start date (e.g., retire at 65 and start benefits at age 67 or 70 for example). It only seems to tell what my benefit is if I continue to work to the later dates.
busdriver wrote: Wed Aug 17, 2022 7:31 pm
iim7V7IM7 wrote: Tue Aug 16, 2022 2:13 pm
At age 65 along with her Social Security I will have a company pension (no-COLA). The rest of our income will come from our ~3.3M investment portfolio.
Would delaying the pension increase the amount paid?

I retired at 65 and have been living off taxable funds initially, now IRA funds for the last few years along with making Roth conversions to reduce future RMD's. By waiting until 70 to draw SS and pension, (also no-COLA), both increase significantly.
User avatar
busdriver
Posts: 257
Joined: Thu Apr 10, 2014 8:57 am
Location: Vancouver, WA

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by busdriver »

iim7V7IM7 wrote: Thu Aug 18, 2022 8:08 am It is an excellent question. The online calculator does not seem to let me put in a retirement date and an offset pension start date (e.g., retire at 65 and start benefits at age 67 or 70 for example). It only seems to tell what my benefit is if I continue to work to the later dates.
Hopefully you have a way to contact benefits/HR dept. to ask the question.

I had a different funding plan in mind for retirement. Thankfully, shortly before I left, a co-worker who had a side job as a CFP asked me if I had requested an estimate for 70. I said no, but would request one. Turned out to be a total game changer for me.
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by Admiral »

I would retire now and start spending down Traditional. You have plenty of money and plenty of discretionary items to cut.

Barring that, I don't see a good argument either way for taking at FRA or age 70 assuming the pension has a survivorship benefit (if you mentioned that, I missed it). Most pensions do, with the tradeoff being a lower payment to make up for it.

If it doesn't, then waiting for a larger SS benefit makes sense. It's likely that when one of you dies, your expenses will drop (though taxes may go up, of course).
fyre4ce
Posts: 2544
Joined: Sun Aug 06, 2017 11:29 am

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by fyre4ce »

iim7V7IM7 wrote: Thu Aug 18, 2022 8:04 am Thanks for sharing your thoughts:

My only ability to contribute to a Roth IRA while I am working is through the Mega Backdoor rollover of after tax dollars contributed to my 401k. The max in my plan for total pre-tax and post-tax contributions this year is $67,500. This year, I use $27,500 (pre-tax) with about an $11,000 company match). My post match contributions will be on the order of $25,000. I expect to do similar for the next 3 years but in my retirement year

We have no children and we both have one sibling (mine is younger and her's is older) so aside from that, some charities and some friends so our legacy requirements are minimal.
What do you expect your marginal tax rate to be while working? If you want, you can mimic a Roth contribution by contributing pre-tax into your 401k and converting an equal amount from pre-tax to Roth in your IRAs.

Have you thought about where you want to leave your money in your will? If it's to charity, you'll generally maximize the amount the amount they get by NOT doing any Roth conversions. If it's to your siblings, you'll need to make some guesses about their tax situation to decide which way to lean.
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by iim7V7IM7 »

Last year and this year 35% Federal Marginal Bracket and when retired (assuming brackets do not change...stop laughing! :D ) in the 24% Federal Marginal Bracket both before and after SSA kicks in. Regarding the will, as we age the family beneficiaries will change. Her sister is 9 years older and might not outlive her and my brother is 5-1/2 years younger. The charities are known and like you have said IRA money is AOK.
fyre4ce wrote: Thu Aug 18, 2022 10:14 am
iim7V7IM7 wrote: Thu Aug 18, 2022 8:04 am Thanks for sharing your thoughts:

My only ability to contribute to a Roth IRA while I am working is through the Mega Backdoor rollover of after tax dollars contributed to my 401k. The max in my plan for total pre-tax and post-tax contributions this year is $67,500. This year, I use $27,500 (pre-tax) with about an $11,000 company match). My post match contributions will be on the order of $25,000. I expect to do similar for the next 3 years but in my retirement year

We have no children and we both have one sibling (mine is younger and her's is older) so aside from that, some charities and some friends so our legacy requirements are minimal.
What do you expect your marginal tax rate to be while working? If you want, you can mimic a Roth contribution by contributing pre-tax into your 401k and converting an equal amount from pre-tax to Roth in your IRAs.

Have you thought about where you want to leave your money in your will? If it's to charity, you'll generally maximize the amount the amount they get by NOT doing any Roth conversions. If it's to your siblings, you'll need to make some guesses about their tax situation to decide which way to lean.
fyre4ce
Posts: 2544
Joined: Sun Aug 06, 2017 11:29 am

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by fyre4ce »

iim7V7IM7 wrote: Thu Aug 18, 2022 12:52 pm Last year and this year 35% Federal Marginal Bracket and when retired (assuming brackets do not change...stop laughing! :D ) in the 24% Federal Marginal Bracket both before and after SSA kicks in. Regarding the will, as we age the family beneficiaries will change. Her sister is 9 years older and might not outlive her and my brother is 5-1/2 years younger. The charities are known and like you have said IRA money is AOK.
I would definitely still defer taxes @ 35%, especially with charities as part of your estate plan.
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by iim7V7IM7 »

Thanks...that is where my thoughts are aligning to.

- Fund my SSA deferral by taking an extra $30k/year from my IRA and an extra $20k/year
- Keep the Brokerage account as reserves for irregular expenses and large spending shocks
- Leave the Roth IRA to grow and consider some level of Roth conversion so long as it stays within the 24% tax bracket*

*I need to factor in the lower IRMAA threshold that a Roth conversion might trigger despite still being within the 25% federal marginal bracket

The issue with my Brokerage account is one that I need to consider:

The Brokerage account was established when I was in the 32% and 35% Federal Marginal tax bracket. Whether the municipal bond funds will still make sense when we are in a lower 24% tax bracket is less clear.

It also was established for both shorter term (< 5 years) and longer term goals (>5 years). The shorter term goals was additional money to supplement the sale of our current homes to move, furnish and purchase a retirement home in the 2026-27 period. I was also originally thinking the use it to supplement our income during the years that I deferred my Social Security (2026-2031). If we now use IRAs to fund my deferral this money will now become our long-term reserves for irregular large expenses (e.g., a new roof, automobiles etc.) and spending shocks (e.g., medical or legal out of pocket, LTC elimination period etc.).

It is invested in:

30% Vanguard Total Stock Market Index Adm Sh
40% Vanguard Limited-Term Tax Exempt Adm Sh
20% Vanguard Intermediate-Term Tax Exempt Adm Sh
10% Vanguard Treasury Money Market

My thought would be to use the Vanguard Limited-Term Tax Exempt Adm Sh and Vanguard Treasury Money Market to help purchase the home in 2026-2027 timeframe.

I could leave the Vanguard Total Stock Market Index Adm Sh and Vanguard Intermediate-Term Tax Exempt Adm Sh. in my brokerage for longer term reserves. I think that I need to further invest into Vanguard Intermediate-Term Tax Exempt Adm Sh once the Vanguard Total Stock Market Index Adm Sh plus Vanguard Treasury Money Market have enough money to fund our shorter-term goals.

Over the long haul, stocks with grow much faster than Intermediate-Term Tax Exempt. So maybe at 30-40% stocks and 60-70% bonds. Over time I can have the stock distributions invested into the Intermediate-Term Tax Exempt in an attempt to keep the account < 60% equity / > 40% fixed income allocation in attempt to control the rising glide path.

Does this make sense or is there another approach to consider?
fyre4ce wrote: Thu Aug 18, 2022 1:57 pm
iim7V7IM7 wrote: Thu Aug 18, 2022 12:52 pm Last year and this year 35% Federal Marginal Bracket and when retired (assuming brackets do not change...stop laughing! :D ) in the 24% Federal Marginal Bracket both before and after SSA kicks in. Regarding the will, as we age the family beneficiaries will change. Her sister is 9 years older and might not outlive her and my brother is 5-1/2 years younger. The charities are known and like you have said IRA money is AOK.
I would definitely still defer taxes @ 35%, especially with charities as part of your estate plan.
LiveFor30
Posts: 93
Joined: Sun Jul 14, 2019 10:07 am

Re: Retiring at age 65 and trying to figure the best source to fund a Social Security deferral until age 70?

Post by LiveFor30 »

testing321 wrote: Tue Aug 16, 2022 2:45 pm I also did some consulting which allowed me to deduct medical and dental premiums.
I have a certain amount of funds owed me for consulting work and am being paid over time. I can control the income flow but it will eventually be all paid off to me and done. I didn't know until I did taxes last year that you can only claim the medical premiums up to the amount of profit you show. You have to pay SS taxes (@15%) on the profit in order to deduct the premium. If you are in the 22% bracket you would subtract 15% and that would leave only a 7% net deduction on the premiums and 22% net deduction on any other business expenses. Am I looking at that correctly?
Post Reply