retiring

[fishheadbob]

No one answer will work for everyone regarding SS. The different strokes for different folks concept always applies.
You can always go to SocialSecurity.gov to see what your own SS might be at different times and at different reduction or delayed retirement credits possibilities.
There's 2 kickers about when to retire; how long are you going to live, and how much have you socked away.

I doubt Congress would ever actually cut benefits for those already entitled as it is electoral suicide. Remember too that members of congress have older relatives who are the most potent lobbyists of all. My observation after watching this closely for a few decades (my old job) is they usually fool around with cutting future benefits for people not too close to retirement as it's safer. The COLA allowances might get throttled back for beneficiaries as there is a school of thought that they may be too generous. Likely to raise payroll taxes (F.I.C.A.) Lastly for those few of you who still have defined benefit pensions through your employer or labor union : Don't automatically take the survivor option. You say "What, I love my wife." Sometimes the more cost effective plan is to take self only with no survivor benefit. Use the extra money to fund additional life insurance to protect your loved one. That will take one heck of a spreadsheet to compute.

 

[goeduck]

Question

I知 on disability due to an illness. I get disability payments but they have not taken out for 401k. Can I put money in myself?

Never mind, called my 401k, they said no. Has to come out of paycheck from employer. So as soon as I知 back to work I have to jack up what they take out.

That is odd, most 401s allow you to contribute along with the employer. But they seem to be saying even if it is your money the routing of the money has to come from the employer?

 

[aczlan]

That is odd, most 401s allow you to contribute along with the employer. But they seem to be saying even if it is your money the routing of the money has to come from the employer?

Yes, the reason is it a 401k is pre-tax, as such it has to be paid for with pre-tax money as it gets paid on the way out. If you want to do something on your own, I think you need something like a Roth IRA which is paid for with post-tax money and does not get taxed on the way out (or gets taxed at a lower rate).

Aaron Z

 

[bird dogger]

I don't know the details of how SS works, but there will be some age (80something) where taking a smaller amount at age 62 will be equal to a larger amount at some later age. After 80something, the larger monthly payout becomes the best option, so if David used 30-35 years as his post-retirement planning lifespan, shouldn't taking the larger amount at a later age be the option with the best financial payout? If not, the whole deferring to get a larger payout incentive doesn't work, which I doubt.

Chris

My earlier post regarding SS withdrawals at age 62 vs. full retirement age wasn't an easy one to grasp. Let's try again with some actual #s. I'lll even slant the #s to give advantage to waiting to age 66 vs. starting at age 62 and see where it leads with a simpler illustration using my situation, but rounding to nice simple #s for ease of understanding. Also, since its usually mentioned that its better to wait til full retirement age to start SS, that implies you don't need the money prior to age 66. That is my situation as I try to have a ready reserve fund that will last me quite a while in a down market. But I still took it at age 62. Why? This:
Full retirement age: 66 (actually 66.5) but giving it the advantage of being earlier. SS benefit: $2500 mo.
Age 62: Reduced SS benefit is $2000 month (Easy figures to use but again slanted a little bit to give advantage to the age 66 benefits. The difference between the two payments is $500 per month.

Using age 90 as the year I suffer a heart attack in the tractor seat and die. (Again, that's giving the advantage towards living a longer life since the male life expectancy used now is roughly 78 yrs.) That extra $500/month over the 24 yr. period amounts to a total of $144,000. ($6000/yr x 24)

Age 62 to age 66 benefits totaled: $96,000 (2000/month x 12 x 4yrs) Since I didn't really need those funds they can be placed in an account of some kind. Accumulating interest or appreciating in value, they are still taxable so at age 66 the value is only $80,000 (a pretty close figure for my situation, maybe even low.

Now at age 66 I will still only get $2000/month but if I want or need, I can use some of that $80000 already accumulated. Let's say I need to. Even if I had now buried it in the back yard, I could dig up $500 monthly to add to my ss benefit and that could continue for 13.3 yrs. (80000 / 500 /12). That would now make me 79.33 years old. (I'm also at the average age of life expectancy for males today!!) Still have 11 years from my death at age 90. I would be missing out on 11 years x $6000 per year or $66000 payment?.IF I had buried that $80K in the yard? If I live to age 90.

Remember the total extra benefits paid over the 24 years was $144000. What kind of interest must that $80K make to have that same future value over a 24 yr period. An online calculator here: Future Value Calculator, Basic Future Value Calculator, Basic says that after 24 years at only 2.5% APR the value would then become $145,678.55. Pretty close! And that's gambling that I'm going to beat all odds and live those same 11 years past the normal male life expectancy of 78 to 80 years.
That's a big gamble. It's also saying that those same ss benefits will still be there for that 28 yr period. Another big gamble. But they say your wife will then get your ss benefits from your demise forward. If she outlives me, then yes. But then she gives up her ss benefits for mine. The government wins big time because now they're only paying one benefit out. She can't double dip. I'd be really gambling that I would beat the system and really outlive the average age of death. If one uses the average age of death then the interest needed for a ROI on that $80K is even less than 2.5%. It might work out to the above buried in the back yard return? That return lasted until age 79+

It also isn't hard to have an annual return of greater than 2.5% APR. My lifetime average is multiple times that amount. And that $80K is sitting there for times of need because it allows you to keep that same amount of your own funds invested in the market in a vehicle of your choice. As long as I'm making more than a 2.5% ROI on $80K of my money I feel I'm ahead of the game by far. I feel if I waited to age 66 or even later to receive a bigger benefit I'd really be gambling that I could beat the odds and live way past the average age of 78 - 80 years old. And that $80K on top of my $2K monthly benefit gives me quite a buffer to wait out a down market. I do have some other funds for emergencies also.

Again, these are my thoughts for my situation. Everyone's is different. But don't assume its always better to wait for your ss benefits. A bird in the hand may be worth two in the bush!! And the axiom that states, I'm from the government, and I'm here to help! is really questionable! I'd rather be in charge of my funds instead of depending on the financial wizardry of the government. The best part of this thread is that it gets us all thinking of the different scenarios and what might be the best route to follow for each of us.

Best regards,
David

 

[Jstpssng]

Type a little faster guys, I'm readiing it as quickly as you're putting it out. Bird Dogger's comment on when to collect SS is something I'm thinking about, although he doesn't get into the penalties if you make too much over the income limit between 62 vs 66and10 months... the only drawback is health insurance.

 

[buckeyefarmer]

Yes, the reason is it a 401k is pre-tax, as such it has to be paid for with pre-tax money as it gets paid on the way out. If you want to do something on your own, I think you need something like a Roth IRA which is paid for with post-tax money and does not get taxed on the way out (or gets taxed at a lower rate).

Aaron Z

Makes sense. To hit my limit I can pay into a Roth or an ira I guess

 

[bird dogger]

Type a little faster guys, I'm readiing it as quickly as you're putting it out. Bird Dogger's comment on when to collect SS is something I'm thinking about, although he doesn't get into the penalties if you make too much over the income limit between 62 vs 66and10 months... the only drawback is health insurance.

Jstpssng, too funny! That took a while to type up in Word. But then the darn "characters" don't xfer correctly and it took almost as long to edit again.

But agreed, it doesn't take into account penalties for too much income. I'm retired so I have no real income other than the ss benefits. I do a lot of charity work, play in my shop, and have a few 80+ year old friends that depend on me quite a bit and are just a hoot to help out! I'm busier now than ever, and loving it. The best thing about being retired is: If you start to feel too ambitious, all you need to do is sit down for a while until the feeling goes away!! (just kidding)

Thanks again for the great comment and the smile!!
David

Edit: I was fortunate enough to have coverage through my former employer as a bargained for benefit. We remained on their health insurance from 62 to full retirement age. 65 and I enrolled with Medicare.

 

[bird dogger]

No one answer will work for everyone regarding SS. The different strokes for different folks concept always applies.
You can always go to SocialSecurity.gov to see what your own SS might be at different times and at different reduction or delayed retirement credits possibilities.
There's 2 kickers about when to retire; how long are you going to live, and how much have you socked away.

I doubt Congress would ever actually cut benefits for those already entitled as it is electoral suicide. Remember too that members of congress have older relatives who are the most potent lobbyists of all. My observation after watching this closely for a few decades (my old job) is they usually fool around with cutting future benefits for people not too close to retirement as it's safer. The COLA allowances might get throttled back for beneficiaries as there is a school of thought that they may be too generous. Likely to raise payroll taxes (F.I.C.A.) Lastly for those few of you who still have defined benefit pensions through your employer or labor union : Don't automatically take the survivor option. You say "What, I love my wife." Sometimes the more cost effective plan is to take self only with no survivor benefit. Use the extra money to fund additional life insurance to protect your loved one. That will take one heck of a spreadsheet to compute.

Yes, BUT: My mother was a postal carrier. My father a custodian for a university system. He was 11 yrs older than my mother. Not exactly sure how their retirement accounts were handled. Mom's was definitely civil service. Dad's, maybe similar??? My older brother helped my mother (executor) with the estate paperwork. When my father died, Mom started collecting his SS benefits. My father had opted (with his plan at the time) to take a lesser SS benefit so that mother was able to take his at the time of his death. Which she did. For about 2 years after his death. Then she got a letter from the SS admin saying that she owed them all those SS payments back as it was illegal for her to collect his. Even though at the time Dad had opted for the lesser amount so that she could. It didn't matter. they told her that the rules were the rules and that even if Dad had been instructed to take a lesser amount back then (probably 15 years worth) it was most likely not proper to have offered that to him at that time. My parents even had that paperwork saved which showed his decision. Didn't matter. She was given a couple of months to pay the funds back (close to $40K) or start paying penalties. They would also not reimburse anything for the so called improper lesser payments that dad had been receiving all those years. Pretty heartbreaking for an elderly widow!! So things can change, and usually not for the better!!
Regards,
david

 

[goeduck]

Type a little faster guys, I'm readiing it as quickly as you're putting it out. Bird Dogger's comment on when to collect SS is something I'm thinking about, although he doesn't get into the penalties if you make too much over the income limit between 62 vs 66and10 months... the only drawback is health insurance.

Exactly. Those are the reasons (mainly medical) I will not be retiring prior to age 65 when at least medicare handles some of the medical costs. At that time I will flip over onto my wife’s medical insurance supplement (she worked for the State, so good coverage).

 

[bird dogger]

I think your math is correct, but from my perspective, there is a weakness in your logic. I did the same calculations (for my situation, normal retirement age of 66, early retirement penalty 25%, late retirement bonus 32%). Per my spreadsheet, if you assume that the SS payments are invested and return 5% above inflation, Waiting until normal retirement 66 (becomes the best choice at age 84 and waiting until late date (age 70) become the best choice at age 92. However, if you ignore returns and only look at cash received, the waiting until age 66 becomes the best choice at age 77 and waiting until 70 becomes the best choice at age 81.

I think you should ignore potential returns after you retire. They are not a sure thing. Knowing you will have inflation protected income in retirement will allow you to invest more in higher risk things because you won't have the potential need to withdraw at the worst time. I have adequate income from SS and a pension annuity such that I don't NEED income from my investments, giving me freedom invest any way I want.

I think you make a valid point but it depends on people being able to invest for aggressive gains in retirement. For me it was somewhat academic because I worked until I was almost 68, so taking early payments was off the table.

KennyG, I agree with a lot of what you say but think you leave out another factor, too. But first: If you look at my later post with actual numbers you'll see that the funds I collect between age 62 to age 66 will roughly be $80K after taxes but with some growth during those first 4 years. With this financial calculator Future Value Calculator, Basic
plugging in that $80K at 5% for 24 years amounts to $265K of accumulated value. And that's at a straight 5%, not 5% above the average inflation. With that kind of money accumulating I could easily draw more money monthly that would equal and surpass the benefits paid if I waited to age 65 to start drawing. It would also allow for quite a bit of spare time should the value dip a little during the 24 yrs. Since it's only making 5% its most likely in a pretty stable fund and wouldn't fluctuate too wildly anyway. As my later figures showed...even a 2.5% return (pretty meagher) equaled out to the same as having waited to age 66. And that $80K is in my account, not the governments.

The biggest factor that influenced me was that using the age of 90 as a death date far exceeds the average age of a male today. And even putting that $80K in a tin can buried in the back yard, removing $500 monthly to bring my reduced ss benefit up to the same amount as my full benefit would have been ($2500 monthly) would still last me to age 79+. Pretty scary that that's the average age of a males demise here in the states. I think that's where we differ in how we look at it. (besides the discrepancy in the accumulated value of the early payments). Is the glass half empty or half full. You're not mentioning the average lifespan but expecting to live well past age 78-80, and I hope you do, along with everyone else. But I'm figuring everything past age 80 is a pure gift. and a lot of things involving ss benefits can change in that 24 year period. I'd rather have that $80K, in my situation, up front in my account rather than hope its there all those years later. Plus if I use it wisely it will more than outperform the benefits offered by the government for waiting to take it later. I kinda liken it to the government being the seller of insurance and you're thinking you'll outlive the odds and their betting the average person doesn't. Plus the payout is still stacked in their favor.

But I do agree with you that each person's situation is different, each person's beliefs and risk tolerance is different, and each should choose what they think will work best for them. Our different views and explanations all help to educate each other. I know I need to start struggling with how, when and how much $$$ to begin shifting over into more secure funds the older I get. It's hard to admit that I'm nearing the end of life's runway and it's getting shorter every day!

Thanks for the response!! I do appreciate it.
Regards,
David