This thread constantly makes me feel uninformed … and then I get informed!
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LOL - aka “the more I learn the less I know”.
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I asked DH about this. He said that the giving fund said we can’t use it (the fund) for “dues” or “services” and initially our synagogue wasn’t on their “list”, so we had to go through additional steps/documentation to make donations to it through the giving fund. But we were able to take the dues as tax deductible. Just didn’t pay it from the giving fund.
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Depending on how much you have in IRA/SarSepIRA, and trying to keep in your same income category, it may be worthwhile to slowly move IRA/SarSepIRA into Roth IRA so that by the time you get to RMDs you are keeping your taxes more level.
An accountant you may find potentially can advise you on the best way you can handle your finances tax wise. Since you have cash flow from real estate, that is terrific. If your DH doesn’t have a pension when retired, you do want to consider taking SS at ‘full retirement’ (or close to it) instead of waiting until 70 - then SS can be a cash flow item instead of draining your current funds/investment funds for living expenses you might have - and you may have a good cash flow from real estate where you would be using some of these funds for living expenses.
You might want to meet with a FA to do a Risk Assessment, or pay for a FA’s time (versus having FA manage directly your funds with a percentage yearly payment). My parents had cash flow from real estate and their SS, and had sent up a trust. Dad had co-owned a small bar/restaurant that the operator was able to buy out dad’s portion of ownership over time – before dad retired from his construction firm ownership, he remodeled the interior of the bar/restaurant. When the bank wanted to charge too much interest on a loan for the operator to buy out dad, dad loaned the operator the money at a lower interest rate, a win-win.
We are a bit older (both 67), we have no pensions, nor do we have property beyond our home. I was out of the workforce as SAHM for 18 years, but got enough work quarters in on sunset career to be able to draw SS when I retired at 65. DH retired before 65, but my job then carried the health insurance (DH is 4 months older than me). So I turned on SS and Medicare/Supplement right at 65.
The penalty for drawing SS between 62 and 65 is ‘heavy’ IMHO - although it might sound ‘light’ to someone who wants to retire that early.
Since DH and I were both born in 1956, our ‘full SS retirement’ was beyond 65 (it was 66 and 4 months). DH started drawing SS at 65 and 8 months, and was drawing $143/month less than if he waited until 66 and 4 months. To us, with cash flow, it was worth taking it then. Our investments make more than the 8% increase that SS has factored in for retirement at age 70 (DH was drawing $1,088/month less than the calculation for age 70). Yes, SS has had percentages of more payment with inflation, but it was a good decision for us to take SS when we did. At that point we also started withdrawing w/o penalty from the annuities we paid for spinning off the funds from DH’s 401k. The annuities greatly reduced our portfolio risk to what we were comfortable with. I also had some IRA funds which had been converted from 401k during earlier working years, and I have now some Roth IRA funds and two annuities.
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It occurred to me that I don’t know whether the recent bout of high inflation makes the penalty greater or less in real terms? If inflation stays high then you should expect to apply a higher discount rate to the future stream of payments, although the value of the payments themselves is adjusted for inflation which would offset this. But isn’t the penalty a fixed amount unrelated to inflation? If so then wouldn’t the higher discount rate due to inflation tilt the decision slightly in favor of taking SS earlier?
Mathematically, there is no ‘penalty’ for claiming early for the total population of single individuals. In other words, claiming early is actuarially neutral to SS for a never married in average health. And “average” health means having one or more chronic conditions for which you are taking prescriptions. The reason this is important is that the actuarially neutral claiming early $ haircut ignores spousal/survivor benefits and does not account for people in excellent health who will likely live longer than SS single sex tables.
OTOH, the NPV of claiming early vs late does change with a higher discount rate.
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Yeah but the benefit of claiming SS at 62 instead of later is you don’t have to go to work any longer.
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H and I discussed this (at length) with our financial advisor who is the ONLY person (other than us) who knows our entire financial situation. He ran a lot of numbers to back this up. In our case he advised us to start at 62. He also made the point that it is not a “one size fits all” situation.
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That’s a much different issue. Plenty of folks retire and claim at SS 62 bcos they have to. Plenty of others work well past age 62, and don’t need the cash.
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Both our FA and tax attorney told us to take it whenever we wanted as we didn’t figure it in to our retirement planning. We took it at 64/65. It’s enough for us to live on if we scaled back a bit and keeps us from drawing more than 2% from our portfolio. Barring the apocalypse, we’re not going to run out of money, so the SS amount is moot.
Definitely not a one-size-fits-all calculation.
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yes, every person’s situation is different. But unless you both are of ill-health (none of my business), your FA’s recommendation is definitely sub-optimal from a financial standpoint. Nothing wrong with that, as there are plenty of non-financial reasons to claim earlier rather than later.
Same math applies here. Drawing from your portfolio and taking SS later could mean more wealth for your heirs.
Adding an impossible to factor consideration is the possible 20% cutback in benefits scheduled for 2034. I think that would be massively unpopular so imagine an increase in taxable maximum or means testing will be more likely, but I don’t have a crystal ball.
But, if one did think a cutback were likely, it tilts toward the claiming early position.
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Our son knows we plan to die with a dollar (though we won’t). He is well on his way to building his own wealth. Our retirement planning did not include concern for inheritance.
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since the 20% haircut applies to everyone, the studies that I have seen indicate that the math is no different from claiming early or later in that scenario.
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Agree. The only things we are doing are to help with settling our estates when we die.
If we want our kids to have money, we gift it to them…now. And we do.
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SS adjusts their estimated benefits with “Your Social Security Statement” based on the current payment adjustments (snap shot at that point in time). If you printed out a Social Security Statement in the prior year, and the year after a COL benefit increase, you would capture that information plus any increases due to being one year older and having earnings calculated based on the highest 40 quarters of earnings/payments into SS.
For example, on my SS, I had a 3 printed statements - snap shot ‘checking’ - in 2014 (when DH and I created our online SS services), in 2016, in 2020, and March 2021. I had earnings through Sept 2021, but got a good idea on that March 2021 statement on amount of monthly payment. When I had my SS retirement phone appointment, they verified what my payments would be and I also received written confirmation.
On my Mar 2021 statement, it gave payment amount at full retirement (66 years 4 months), payment amount at age 70, and payment at age 64 (as I was turning 64 that year).
Benefits (as I stated above) are based on highest 40 quarter earnings (need 10 years of earnings as a minimum) to meet SS qualifications for those individual payments. I chose to have SS right at my retirement at age 65, Oct 2021.
Since I still had earnings in 2021, and those earnings were part of the higher paid quarters during work history, my SS earnings were adjusted up a little by over $100/month after 2021 earnings were summarized at the end of 2021 - and since SS benefits for a given month are paid in the next month, they adjusted my payments accordingly (taking 2021 earnings into account, payment for December was increase with Jan 2022 payment, and a separate small payment for Oct and Nov with direct deposit into my checking account). Then the 2023 SS cost of living adjustment increased my benefits by a little over $144/month. SS is increasing benefits by 3.2% in 2024 because of a rise in the cost of living. So my new benefits are up about $ 56/month.
I know some teachers who retire at 62, because their pension payments are at or higher than their salary, and they can purchase their insurance at a reasonable cost for individual plan. MIL was 65, and her DH was months older than her; she actually had a ‘pay raise’ with retirement pension and SS - also due to low cost of supplement insurance to Medicare through her state retirement teacher group. FIL continued working at post office (he didn’t have enough time with post office for retirement there) with a rural route until winters got too tough (he had several years of no employment, partial employment, and low pay employment). They both lived to age 92, while staying in relatively decent health through the 70’s, declining health in their 80’s, and really very limited ‘no go’ time in upper 80’s until their deaths.
I forgot to add an independent calculator dinkytown.net and off their menu, SS benefit calculator.
I ran one of the online calculators, and its suggestion for our situation (husband 7 years older) was same as our FA. SS deferred to 70 for him, with me starting (or at least thinking about it) around age 62. But even with that generalized advise the answer will differ for each family.
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It just ‘feels’ like it would be better. A bird in the hand…
I am laughing at myself–not questioning you.
But the government won’t ask you for 20% of what you’ve already received back…its only a haircut to future payments. So the more payments you receive at 100% rather than 80% the better…
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Yes, that is what I had been thinking, but then I started wondering if I were looking at it the wrong way.