Has anyone been following the changes to the Social Security “File and Suspend” rules in the current budget plan? From what I read, those of us under 62 can no longer benefit from this strategy. I have read two articles by Professor Kotlikoff, which I post here:
DH and I are both under 62 years old, but there are several posters here that might be affected immediately.
@BerneseMtnMom, there’s also a separate thread on the Social Security changes.
ok, thank you.
I do have a question for a friend in a small town in Arkansas. She just got divorced and was awarded half of the ex-husband’s IRA. My research for her showed that with the husband older than 59.5, she could withdraw some of the money without the usual 10 percent penalty.
She has not rolled over her part into her name yet because all the financial advisers she consulted have not heard of the penalty-free withdrawal.
I told her to consult and roll over with a nationwide company like Ameritrade, Charles Schwab etc. They should know what the IRA-rules are.
Please let me know if you have additional advice for her. She is getting desperate about a down payment for a small house and putting the remainder in her own name. She is aware of tax-implications if she takes out some money.
@TallyMom2017, I think your advice to your friend is good.
Have any of you looked at the Lincoln Money Guard Hybridge LTC? Suggested by my secondary my FA.
Should have said Hybrid LTC.
Hybrid LTC policies are insurance/annuity. There are fees involved. The way LTC insurance prices are running, one may wish to self insure. Please understand everything - some FAs are very self serving.
Kiplinger’s Dec 2014 has a 4 page article mostly focusing on a couple and retirement transitioning. Also discusses SS File and Suspend. This couple had a long marriage and discussions on how to transition with their situation. One retired first, several years difference in retirement.
I think a lot about when to start collecting my SS recently.
It seems only about 7% who postpone the collection of SS after FRA. I do not think I will be one of them. But I think I could “do better” than about 45% of retirees who start to collect SS at 62 yo.
(This percentage info is for the year 2013 so it is somewhat outdated. But I think the percentage has not been changed significantly since then. The link:
http://money.usnews.com/money/retirement/articles/2013/09/09/the-most-popular-ages-to-claim-social-security
)
I am thinking of collecting it at 64, likely will not wait till 65 (about 14% of retirees choose to do so) let alone 66 (19 percent of men and 13 percent of women born in 1943 and 1944.)
So I will do worse than 7% + 19% + 14% = 40% of retirees, assuming that those starting to collecting SS later are doing “better” financially than those starting earlier.
When do you plan to start collecting SS?
According to the following “layman’s” analysis (that I found from the Internet) the break-even age is about 78 yo if I start to collect SS at 62.
"My wife, Jo, started receiving Social Security as soon as she could. When she wondered aloud how much larger her checks would have been if she’d waited, I said, “It makes no difference! You are already four years ahead of the game.”
When we applied at the local office, the agent kept reminding her of the big raise she would get if she waited until full retirement age, or better yet until she was 70. Stop with the hard sell; she wanted it at 62, period!
Why did she take it early? To illustrate, I did a little investigating on the Social Security Administration’s website and used its retirement planner.
First, a person born on January 1, 1951 could begin receiving benefits in January 2013, at age 62.
What if you are 62 years old and still working? The website makes it clear: “If you are younger than full retirement age during all of 2013, we must deduct $1 from all your benefits for each $2 you earned above $15,120.” If you are working full time, that’s a good incentive to hold off. If you are not employed, as was the case for my wife, keep investigating.
On the handy retirement planner’s calculator, I clicked “Calculate.” and it said, “You choose to receive benefits 47 months before you reach your normal retirement age. Your benefit will be 75.42 % of your primary insurance amount.”
I suppose there are some fancy calculations I could do, but I prefer the common-sense method. To make the example simple, let’s assume that Jo’s check would be $1,000 at full retirement age. If she chose to start receiving benefits now, it would be $754.20. Over the 47 months between now and her full retirement age, Jo will receive $35,447.40.
Next, let’s subtract $754.20 from $1,000—her payment if she waits until age 66. The answer: $245.80; that’s how much her payment is reduced if she takes it at age 62.
Now here’s the fun part. Divide $35,447.40 by $245.80 per month and you get 144.21 months. That means it would take a little over 144 months, or 12 years before she has made a bad deal. Now I suppose there are some math majors or clever folks who can factor in inflation and other variables; they might tell us that the true break-even point is even further down the road.
If you were born between 1943 and 1954, your full retirement age is 66. Add 12 years to that and you will be 78. If you die before then, you would have been better off taking your money earlier. If you live much longer, then maybe you should have waited. Whatever your decision, you should know what you’re getting into and understand the risks and potential rewards."
@mcat . Here is a link that factors in inflation, tax rates and returns etc. Ignore the second half about couples because for the most part that has changed.
Do you think the calculation changes for people with a pension where at 62 the reduced ss plus their pension is an amount greater than their net pay?
I love my job but keep running through my mind that at 62 I retire and no longer contribute to my pension at 7.5% of my pay and social security/medicare at also about 7.5% of my pay plus my commute costs plus all the other minor taxes and fees that reduce my gross pay that I should retire at 62 because it makes the most financial sense. Why come to work there for less than staying home or even getting a part time job.
Tom1944, maybe you love what you are doing and would rather continue than stay at home or get a different part time job? Some people love their jobs. You don’t have to take ss at age 62.
H is not eligible for any SS. People in my family live VERY long, so I will likely wait until age 70 to get SS. I’m not going to agonize about money I may lose by not collecting at the earliest possible age and what happens if SS applies a means test to make me ineligible for benefits. To me life is too short to obsess about all the “what-ifs.”
Where you been, dstark???
dstark you are correct for now I love my job and most likely will work past 62. There are several factors I have to consider though because the reality is that at 62 I take home less money working than being retired as long as I collect SS.
The other big change is that at retirement I qualify for health care at no cost but while I work I pay 35% of the premium. That is about $7000 I pay while working but would not pay being retired.
@jym626, I have been reading. Didn’t feel like posting. 
Well @tom1944, there is more to life than money. Only you can decide what makes you happy.
dstark- on the happiness index I have been very lucky.
I could never imagine that I would take home less money working than being retired as long as I collect SS and pensions. I think the main difference between tom1944 and I is that he has been working for the “right” company (or government organization) which still gives out generous pensions but I have not.
Just a thought experiment here: If a person contributes the same 7.5% of his pay to both his pension and SS/medicare, unless his company also contributed generously to his pension fund, he would collect the same amount from his pensions and SS.
For most people who have been working and contributing to SA for 35 years, the SS payment only replaces about 30% of his pre-retirement income. Suppose that his pensions also replaces about 30% of his pre-retirement income, he has 60% of his pre-retirement covered. In order to have 75% of his pre-retirement income after he retires, the other 15% (which is 75% minus 60%) should come from the income stream generated by his nest egg like 401K/IRA (assuming it is the traditional one rather Roth kind.) To make the math easier to compute in my head, suppose that this person’s pre-retirement income is $100,000 per year. He needs $100,000 time 15%, which is $15,000 income stream from his 401K/IRA nest egg. The size of his nest egg should be at least $15,000/3.33% = $15,000 * 30 = $450,000. (I use the 3.33% as the investment return rate because it is said the assumed % of investment return nowadays should be more conservative than 4% so that it should be closer to 3% than the “standard” 4%, and 3.33%, which is 1/30, is easier to use if I want to calculate it in my head.)
Have I got the math right here? Or, the pensions in general are more generous (because the company contributes more into it) so it replaces a higher percentage of the pre-retirement income than merely 30%?
In my situation, my pensions are much smaller (close to 10-12% of my pre-retirement income only.) I think a higher percentage of my pre-retirement income (say, close to one-third, say 30%, of my pre-retirement income should be generated by my nest egg. This implies that my nest egg should be twice as large as the hypothetical example above: 2 times $450,000 = $900,000, almost a million! Since I will not have that much, I will have to retire at a place where the COL is much lower.
mcat- the amount that is contributed to my pension is actually the same that is contributed to social security between what I put into both and what my employer is supposed to contribute.
My pension is going to be significantly larger than social security. I do know that for the close to 40 years I was contributing to the pension plan the plan had an average 8.9% return per year.