Social Security Strategy
L1: Social Security StrategyI’m looking ahead a couple of years to turning age 62 and am starting to consider various strategies for using Social Security benefits as part of my over-all retirement plan. Does anyone on here know of a good book that covers this situation is detail? I’d really like to look at a number of possible options / scenarios as regards when to take SS, whether it is better to stop taking money from my IRA via taking SS early, taking SS early but banking or investing the money, etc.
I understand that there is considerable guess-work involved in such planning. Assumptions of various kinds must be made in order to get started with this. While my grand parents all had long lives, living well into their 80s, my father died at age 67. I am a lot like him physically, although I do take better care of myself than he did via diet, exercise, and regular medical checkups. Still, I am concerned about making the best use of any benefits that are available to me, hence this book request. Thanks for any info that anyone would care to pass along.
2009-10-07 23:43, By: Ed_B, IP: [184.108.40.206]
L2: Social Security StrategyEd,
This link may help you get started via an intro into certain strategies, although I don’t know as there should be an extended discussion here given the remoterelationship between this topic and a 72t plan:
Note: There really is nothing “secret” about these, but SSA Reps are notoriously poorly versed on non standard procedures.2009-10-08 00:56, By: Alan S., IP: [220.127.116.11]
L3: Social Security StrategyThere have been numerous articles recently about “SOCIAL SECURITY PLANNING & STRATEGIES”. These are primarily for married couples, and involve the younger lower earner startingSS benefitswhenher husband(usually) reaches “full retirement age” (FRA) at 66 now, and deferring his SS benefit until age 70. In this way he gets a 32% increase in his benefits for life, and then she gets the same 32% increase in her benefits for the rest of her life as a surviving spouse.
See AARP and Kiplinger, as well as the applicable SS publications. Contrary to the last posting, I have found SS representatives to be the most informed, best qualified of all government advisors.
Quickfinder/Thomson Reuters will have a new handbook “SOCIAL SECURITY & MEDICARE” which will be available in December for about $ 40. If you want to order thru me, send me an e-mail at firstname.lastname@example.org I’ve been selling their books for the PICPA and PSPA for severalyears ( about $ 30,000 each year).
Make sure that you consider planning involving conversions of Traditional IRAs to ROTH IRAs until you become 70, which will reduce RMD after 70, and lower taxes on SS benefits (which are only 85% taxed anyway), and possibly being taxed at 15% rather than 25%-35% later. An experienced CPA or financial planner (fee based) could help with indicating various alternatives.2009-10-08 01:26, By: dlzallestaxes, IP: [18.104.22.168]
L4: Social Security StrategyDLZ:
Thanks for the response. I have seen a couple of articles of the type that you mention. My wife and I had virtually the same income level throughout our careers, so there probably aren’t any advantages that can be had from the higher / lower earning spouse rules. It is a good thought, though.
Discussing this with a good CPA is on my to-do list. I would like to learn what I can before then so that I can ask relevant questions, not waste time on the basics,and have agood idea of where the conversation should be headed. Help of this type can be invaluable and I do not mind paying a decent fee for it.2009-10-08 01:58, By: Ed_B, IP: [22.214.171.124]
L5: Social Security StrategyIf both of you can continue to work, the longer you delay taking SS benefits, the more that you will get when you do retire. Since you have similar earnings histories, assuming she has at least 35 years of them, then she should take hers on her earnings when she retires. She can change to 1/2 of yours based upon 66 if you retire at 70, if it is more than her benefit.
That’s about all that I think is appropriate to go over on this list-serve.2009-10-08 17:44, By: dlzallestaxes, IP: [126.96.36.199]
L6: Social Security StrategyActually, we are both retired but she has a small home-based business that does bring in some money.
Delaying taking SS payments does result in a larger monthly check but those are received for a shorter time period. I read one article that showed how long it takes for the higher payments to exceed the total value of the lower but earlier payments and it was about 12 years. If one lives more than 12 years after starting payments, then a larger benefit is reaped via waiting. If not, then a larger benefit is gained via taking it early. All this presumes that the person spends the money and does not invest it. If invested and the money earns 5-6%, it’s unlikely that the later but larger payments would ever catch up.2009-10-08 18:47, By: Ed_B, IP: [188.8.131.52]
L3: Social Security StrategyAlan:
Thanks for the URL pointer to a very good article in the area in which I am interested.
I understand that this is a peripheral issue that is not directly related to 72t plans. I hesitated to post that for this very reason and do not plan to abuse the patience of the web master here. I do wish that there were other “rooms” on this site where such peripheral issues could be discussed. Some will say “go to a web site that specializes in those areas”. That is reasonable but itcan bedifficult to find another site wherein the people are as knowledgable and helpful as they are here.
I am sure that they could always be better versed in the complexities of SS law but I agree with DLZ on the SS employees. While I have not met a great number of them, I have been to the local SS office a number of times for issues that my Momand Mom-in-law were having. They seemed competent and eager to help. This may not be the case as one moves up the SS food chain but the local folkshave beengreat to me and solved the problems that we were having with SS. 2009-10-08 01:51, By: Ed_B, IP: [184.108.40.206]
L4: Social Security StrategyEd_B…
Anything is poossible. Maybe an area of general discussion where someone could post and possibly get an answer. Or perhaps merely starting the subject with “Off Topic” and keeping the discussion in this forum.
Any other thoughts or suggestions from anyone?
>>do not plan to abuse the patience of the web master here.Your posts are not a problem and now that I am retired, I have a lot more patience
2009-10-08 17:58, By: Gfw, IP: [220.127.116.11]
L5: Social Security Strategy
A general discussion area would be great and much appreciated.
> Your posts are not a problem and now that I am retired, I have a lot more patience.
I understand that completely. Once I retired and the high level of stress that I was under began to melt away, I also gained a lot in the patience area. It never was my strong suit but it is definitely better these days.
2009-10-08 18:40, By: Ed_B, IP: [18.104.22.168]
L6: Social Security StrategyOK then, will continue with other thoughts on SS.
Most of the research comes out of the Univ of Boston, noted economist Lawrence Kotlikoff comes to mind. You might google that name for SS articles.
One such study indicated that delaying SS benefits or return of benefits to secure delayed retirement credits could be compared with the purchase of an immediate annuity. The cost of such an annuity purchase through SS was over 35% less than that purchased from Vanguard, the notable low cost provider through their insurance facilities. As a result, if longevity protection is needed and you have considerable lump sum assets but limited pension or annuity cash flow, taking advantage of delayed credits is a good move to generate more lifetime income. In my case I am taking a spousal benefit (spouse’s normal benefits about 35% less than mine) of 50% of hers while banking the 8% credits per year. You MUST be at NRA (66) to do this. Meanwhile, am converting to a Roth IRA incremental amounts over these years, and when I finally claim on my own record, will probably stop the conversions. Maybe under all 85% of SS in AGI until RMDs get too big.
So far, scare talk re future SS benefits restrictions, orvalue added taxto water down the value of a Roth IRA have not spooked me from this strategy. But I still worry a little..2009-10-08 21:17, By: Alan S., IP: [22.214.171.124]
L7: Social Security Strategy
Yes, I have heard of Dr. Kotlikoff before but have not studied his work. That is an oversight on my part that I plan to correct and sooner rather than later. Thank you for reminding me about him. I am sure that he will be a great resource in my search to learn more about SS and maximizing its benefits.
The delaying of SS benefits is a fascinating area for anyone who is into studying personal financial issues. There is a real tug-of-war between taking benefits early and getting more checks vs. delaying benefits and getting fewer but larger checks. The real hang up is that no one knows how long they will live and therein lies the crux of the matter.
Whether I pass on early or later, I want to maximize the benefits to my family. One way that I might do this is to take benefits early and invest them ina large cap dividend paying stock and bond fund for the time between age 62 and 70. Vanguard’s Wellesley fund comes to mind here. If I get to age 70 and am in good health, I can then decide whether or not to disclaim my benefits by filing a withdrawal of application, returning the money received to that point, and making a new application for the higher benefit offered at age 70. I can keep any earnings on that money. On the other hand, if I do not make it to age 70 (which my father did not), then I will have banked the benefit payments from an early age and my family can keep them as part of my estate.
Reaching further out onto the limb, it is possible that taking early SS benefits will be eliminated as a way to reduce the cost of SS to the government. Means testing could also come in as politicians scramble to raise revenues and reduce expenditures. I understand why they might do this but I did pay into this program for many years and should be able to benefit from it regardless of whether I also saved and planned for retirement. The fact that I will not starve if I don’t get SS benefits should not enter into the equation of whether or not I actually get them… but it might. Taking this possibility into account, taking benefits early while I still can has a lot of appeal even though the amount would be reduced 25% from the amount that might be available at age 70. Once benefits commence, it would be politically impossible for even the most skullduggerous politician to cut them off. Stopping them before they start is doable even if it would be difficult.
To those who would say “SS will always be available” or “that can’t happen here”, I suggest that they read some history. It very well CAN happen here and I do not want to be left out because of some political shenanigan or accident of timing.
2009-10-09 00:18, By: Ed_B, IP: [126.96.36.199]
L8: Social Security StrategyCLARIFICATION :
If your FRA SS benefits will be $ 20,000 then starting early at 62 will be $ 15,000. If you wait to 70, your benefits will be $ 26,400 per year, or almost 80% higher than at age 62.
You did bring to light a little known technique that, if you can afford it, let’s you have your cake and eat it too. You can take your benefits each year starting at 66, and then repay them a year later, or at any time before 70, WITHOUT INTEREST. You can repeat this each year, or late in age 69, and then get the 32% increase at 70 for the rest of your life, and your surviving spouse’s life too.
The breakeven for taking early benefits vs waiting until 66 is about 17 years to age 83. The number of alternative calculations to all of these approaches is mind-bogling.
By the way, as with the decision on retirement plan alternatives, you can always buy a 20 year term ( or single premium) to provide the difference if you take the maximum payments initially.2009-10-09 00:57, By: dlzallestaxes, IP: [188.8.131.52]
L9: Social Security StrategyThis has nothing to do with SS strategy, but amounts to the luck of the draw. First, read this article:http://www.aei.org/article/101149I believe I have a simpler way of explaining this. Everyone has two calendar years where they do NOT get either inflation indexing of their pre age 60 earnings OR a COLA on their earned SS benefits, whether you are yet collecting or not. Those two years are the years they turn 60 and 61. Starting at 62 the COLAs begin. Since inflation comes and goes, and the 2008 COLA of 5.8 was the result of an energy driven inflation bubble, you do NOT want that year omitted from your benefit calculation. Conversely, since the two years after the 2008 COLA are both likely to be -0-, omitting those two years is good thing. Keep in mind that the 5.8 applies to benefits received in 2009, but is officially announced in 2008 and is therefore the 2008 COLA, not the 2009 COLA. The 2009 COLA is -0-.Therefore, the following is the sum of the two years of COLA that you MISS OUT on, and therefore lower is better. The sum is by year of birth:1936 5.01937 3.41938 3.81939 6.01940 6.11941 4.01942 3.51943 4.81944 6.81945 7.41946 5.61947 8.11948 5.81949 01950 0 plus 2011 COLA1951 2011 COLA plus 2012 COLASince lower is better, you can see where those born in 1949 and 1950 may see a windfall, and those born in 1945 and 1947 permanently lost a nice inflation bump.2009-10-17 19:27, By: Alan S., IP: [184.108.40.206]
L10: Social Security Strategy
I read the article to which you referred in your post. I found it interesting in that the author discussed a great deal about the CPI and COLAs but nowhere in there was any discussion about the fact that these things are usually calculated as averages over a large segment of the population. They also include MANY expenses for items that seniors either spend very little on or spend much more than the average. Medical care expenses come to mind for the latter category. I understand the point of the article but wonder at the accuracy of all these calculations as actually regards the real spending patterns and needs of our senior citizens. Not that this matters much, I suppose. The CPI and COLAs will be calculated via the established formulae and reality may or may not be relevant. I thought that this was worth pointing out, however.
On a personal level, I was born in 1949 and my wife in 1950, so it looks as if this particular notch will not affect us much, if at all.2009-10-18 21:40, By: Ed_B, IP: [220.127.116.11]
L11: Social Security StrategyEd_B… My wife (of 40+ years)and Iwere born in ’46 and ’48 so according to thearticle, we aren’t quite as lucky. With that said, I think I will apply for SS benefits next year sometime. We’ll hold off on wife’s benefits until she turnsat least 67. Fortunately (or unfortunately because we both paid lots) we are both entitled to maximum or close to the maximum. She comes from a family of long life expectancy (parents are now about 85 and 89 and still driving) andlife expectancy in my family isn’t quite as good. We also took mypension joint& 100% and her pension as life only based on the same thoughts.My wife has a favorite expression… “There is life after death. When he dies and I get all the money, I’m going to have one hell of a life!” And I guess I’m helping her plan for it 2009-10-18 21:54, By: Gfw, IP: [18.104.22.168]
L9: Social Security Strategy
There can be no doubt that the amount of each monthly SS check will be significantly higher at age 66 (FRA for me) than at age 62. An even larger increase occurs via waiting until age 70. My dilemma here is not in grasping these numbers but is a more personal quest for the most flexible and lucrative over-all strategy. In my case, this appears to be to take SS benefits at age 62, invest all of the money received for the 8 years until age 70, and then consider withdrawing my initial application, repaying the money while keeping any earnings, and then applying for the higher benefit. By doing this, I can establish my SS benefits ASAP, possibly get earnings on the invested SS payments for 8 years, and still have access to the higher benefit if all goes well and long life occurs. If all does not go well, then a larger benefit will be obtained than by waiting longer and perhaps not making it to either age 66 or 70.
I certainly agree that the calculations possible here are mind-boggling. In fact, the whole issue seems to be pretty mind-boggling! As with many aspects of retirement planning, we make the most accurate assumptions we can, create a plan, and then implement it as best we can. Hopefully, all this planning will be closer to the mark than farther from it and the net over-all effect as beneficial as possible.
By the terms “20 year term ( or single premium)”, I take that to mean a life insurance policy? I might be able to do that. I have had some health issues that typically raise the eyebrows of most insurance sellers. I have had some recent success via medication and life-style changes that may ameliorate this to some extent, so who knows? This possibility could work out well for me. Thank you for the suggestion.
2009-10-18 21:56, By: Ed_B, IP: [22.214.171.124]
L9: Social Security Strategy>>you
can always buy a 20 year term (or single premium) to provide the
difference if you take the maximum payments initially.
40 years in the insurance business (I had a CLU, CPC,ChFC, NASD Series 6,
63 and 65), I’m just not a big believer in this approach unless you know
that you are in absolutle perfect health (few people are at 62 to 65)
and know that you will die in the next 20 years, because you definately
won’t be able to keep the insurance in force after age 75 because it
will turn into an ART policy.
The single premium policy I have fewer
problems with, but again only if dividends and excess interest are used
as “extras” and not as part of the payment schedule.
writing software back in the mid-80s that made the concept look
beautiful on paper. The problem was that most agents that sold it based
everything on promises, not reality. 2009-10-18 22:20, By: Gfw, IP: [126.96.36.199]
L10: Social Security StrategyAn interesting new producit to consider is the combinationlong-term care/life insurance policy. The way I understand it, you can draw on the face amount for long-term car benefits, but when you die you get the face amount minus the long-term care benefit used, if any. In a way this can be looked at as an investment that you can collect on in either way, unless you have no long-term care needs, and outlive the life term. But then this is insurance against major expenses or to replace reduced SS benefits for reestablishing the estate for beneficiaries.2009-10-19 04:23, By: dlzallestaxes, IP: [188.8.131.52]
L11: Social Security StrategyEd,The inadequacy of the CPI-W to measure retiree inflation in well known, but I do not think there is much chance for relief.About a decade ago, one of the proposed fixes for the SS system was a plan to reduce the COLA by various measures. But then the explosion in healthcare costs began and has not let up. While healthcare inflation hurts retirees the most, the cost increases have at least defused the idea to reduce the COLA methodology further.If inflation takes off on all fronts in the future, the SS COLA will be very valuable even if it fails to totally offset retiree inflation. Efforts to reform healthcare are only going to increase demand and therefore will do nothing to control costs as far as I am concerned. 2009-10-19 23:52, By: Alan S., IP: [184.108.40.206]
L12: Social Security Strategy
Indeed it is but I thought it worth mentioning in the context of this thread. I agree that there is virtually no chance for relief of any kind on this issue… unfortunately.
One argument that is rarely brought up in all the debate on health care is that having the best usually costs more than having less than the best. Many Americans have ready access to an MRI, for example. Many citizens of other countries do not. While every system has pluses and minuses, the over-all level of care available is very high in the US. I’m not saying that our system is perfect or that it can’t be significantly reformed to improve it but the recent antics in congress with bills that are hundreds of pages long and mostly unread by those voting on them do not impress me as moves in a positive direction.
One thing that might significantly improve the current debate on this issue would be if people would stop confusing health care with health insurance. These two are not even remotely the same, yet the terms are used in an interchangeable way that does nothing but increase the confusion that surrounds these issues.
I saw a great bumper sticker the other day. It read “If you think health care is expensive now, wait ’til it’s free”. Food for thought.
2009-10-20 04:22, By: Ed_B, IP: [220.127.116.11]