Seeking Alpha

David Crosetti's  Instablog

David Crosetti
Send Message
I was born and raised in California. I worked in the family business for a number of years and then decided to spread my wings and try working for someone else. My first significant job was with Frito Lay. After a stint in the salty snack business, I transitioned to the beverage industry,... More
  • Should You Delay Social Security Benefits?  49 comments
    May 23, 2013 10:24 AM

    Tap an IRA Early, Delay Social Security

    This strategy could lower your lifetime tax bite, let you collect higher benefits and extend the longevity of your portfolio.

    By Susan B. Garland, From Kiplinger's Retirement Report, April 2013

    It's conventional wisdom that you should delay tapping your IRA as long as you can. There's also the tendency of most retirees to claim Social Security benefits as soon as possible. The unintended consequence: You're likely to shorten the life span of your nest egg.

    A growing body of research shows that flipping the order may be wiser. You could lower the lifetime tax bite, collect years of higher benefits and extend your portfolio'slongevity if you delay Social Security and take larger IRA withdrawals in the early years of retirement.

    Retirees who collect reduced Social Security benefits early often need to take some IRA money to meet spending goals. These retirees could be hit by what's known as the "tax torpedo." This occurs when IRA withdrawals trigger the taxation of Social Security benefits-and push taxpayers into a higher marginal rate. For these retirees, the tax torpedo can last a lifetime.

    By holding off on Social Security and living on IRA income in those early years, you could receive a larger government benefit later, thus reducing the amount of taxable income you'll need from your IRA. The smaller IRA withdrawals could also increase the likelihood that Social Security benefits will remain tax free.

    The biggest beneficiaries of this strategy are retirees with portfolios of between $200,000 and $600,000, according to research by William Reichenstein and William Meyer, principals of consulting firm Social Security Solutions. For these retirees, Social Security represents a larger share of retirement resources than wealthier retirees, so delaying could have a stronger impact on a portfolio's longevity.

    To avoid the tax torpedo, retirees who are developing an income plan must understand how IRA income and Social Security benefits are taxed. Every dollar withdrawn from a traditional IRAis taxed at ordinary-income tax rates. But James Mahaney, vice-president for strategic initiatives at Prudential Financial, says that Uncle Sam "treats Social Security income at a preferred rate": At least 15% of benefits and as much as 100% is tax free-depending on your total income.

    In addition, Mahaney says, the formula that determines whether Social Security benefits will be vulnerable treats those benefits more favorably than IRA income. While 100% of IRA distributions count as "provisional income" for deciding what percentage of benefits will be taxed, only 50% of benefits are cranked into the formula. (Provisional income is adjusted gross income plus any tax-free interest income and 50% of Social Security benefits.)

    For a single retiree, up to 50% of benefits are taxable if provisional income exceeds $25,000. When provisional income exceeds $34,000, up to 85% of benefits are taxable. The thresholds for joint filers are $32,000 and $44,000.

    As rising provisional income pushes more of your benefits into the taxable realm, your effective tax rate can soar. For higher-income beneficiaries, an extra $100 of income-or IRA distributions-can make $85 of benefits taxable. Taxing $185 at 25% costs you $46.25, the same as taxing your extra $100 at 46.25%.

    You may be able to ease the pain by reducing the amount of provisional income that exceeds the thresholds. Because only 50% of Social Security benefits are included in the formula, you can pour twice as much Social Security income than IRA income into the formula before hitting the threshold.

    Delaying benefits will get you a higher benefit amount later, and that can reduce the need for IRA income. By tipping provisional income toward Social Security income, you can reduce or eliminate the likelihood that your benefits will be taxed.

    Consider this example from Mahaney. The Smiths and the Jacksons are 72-year-old couples who each have $69,000 in income. The Smiths, who claimed their Social Security early, take $45,000 from an IRA and collect $24,000 in benefits each year. The Jacksons, who delayed claiming, get $39,000 in benefits and take just $30,000 from their IRAs.

    The Smiths' provisional income is $57,000 ($45,000 and $12,000); the Jacksons' is $49,500 ($30,000 and $19,500). Because the Smiths have more IRA income than the Jacksons, they have more income exceeding the tax triggers and a higher adjusted gross income. Assuming a 25% federal income tax rate, the Smiths will pay $6,060 in taxes each year, compared with $2,854 for the Jacksons.

    Extend the Life of Your Portfolio

    The extra tax tab could have a big impact on a portfolio's longevity, according to a study by Meyer and Reichenstein. Taking large withdrawals from an IRA in later years can significantly boost the tax bill-and shrink a portfolio. If you are in the 25% tax bracket, for instance, you will need to take $1,000 to raise $750 in income. (Kiplinger's has partnered with Social Security Solutions to help readers maximize lifetime benefits. Go to kiplinger.socialsecuritysolutions.com.)

    The researchers offer this example of an individual who has $700,000 in an IRA when he retires at 62. Starting at that age, he needs after-tax income of $36,150, which is adjusted for inflation over a 30-year retirement. (His portfolio grows at an inflation-adjusted 1.2% a year.) He is due $18,000 a year in Social Security benefits if he collects at his full retirement age of 66.

    If the retiree starts collecting at 62, he will receive a reduced lifetime benefit of $13,500 a year and he will need to make up the $22,650 balance with IRA withdrawals. His portfolio will barely last 30 years, the researchers note. If he delays until 66, his portfolio will last an extra four years. Delay until 70 and his portfolio will last an extra ten years. (If he doesn't believe he will live that long, he can instead boost his annual spending by $3,600.)

    In this scenario, claiming early causes multiple costly problems. The reduced benefit means the retiree will have to withdraw more from his IRA, and since every dollar withdrawn is taxed, he'll have to withdraw even more to cover the tax bill. "It's a double whammy," Meyer says. "You are getting reduced Social Security benefits, and because you need to withdraw more from your tax-deferred account, it kicks up your provisional income and more of your benefits are taxable."

    By delaying until 70, the retiree gets an extra $10,260 in benefits than if he had claimed at 62. He reduces his taxable IRA withdrawals. And by substituting Social Security income for IRA income, his provisional income is lower. The result: a smaller tax tab on his IRA withdrawals and benefits.

Back To David Crosetti's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (49)
Track new comments
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » I found this article the other day. While I haven't completely digested the strategy, I do fall into that category of people who have a portfolio that is within the range discussed in this article.

     

    One thing that I am aware of is the impact of delaying SS benefits. For me, being 64, I could have begun taking SS at age 62. My full retirement age is 66.

     

    At age 62, I would have received a SS benefit which would have been around $1800 a month, based on my contribution history and the formula that SS uses. However, by waiting to collect Social Security, my benefit increases each year until age 70, when the maximum benefit is "earned."

     

    Now, at age 70, I would draw a little over $3000 a month. That is quite a difference from the benefit at age 62. Now, since my wife works and has just gotten a major promotion in her career, out income with her working and me working will go up significantly next year.

     

    That being the case, working the additional two years (until I reach 66) would make sense as we would be able to continue funding our retirement accounts with the new money from her raise. That would allow us to shelter the increase in her income from current taxation, put that money into tax deferred accounts and we would not miss a beat with our life-style as our take home income would remain consistent with this year's income.

     

    Now, at age 66, I could begin to draw dividend income from my retirement accounts to supplement our household income; we would back off on contributions of her raise to my retirement accounts, but continue to fund hers at an accelerated rate; I would hold off on drawing SS and allow my own retirement accounts to continue gathering dividend income that is being reinvested back into my holdings.

     

    There would be no RMD for my accounts until reaching age 70 1/2 which is ok. What I could do is take the RMD to satisfy the tax man, have the $3000 a month in SS benefits, and then take money from the RMD that I don't need and channel that back into my wife's Roth and or to my children's Roth accounts to have theirs be fully funded each year.

     

    Anyway, going to have to sit down with the CPA and the attorney to determine what is the best course of action, but for now, I am leaning toward the delaying of SS benefits until age 70.

     

    Dave
    23 May 2013, 10:39 AM Reply Like
  • Cynical Rhino
    , contributor
    Comments (151) | Send Message
     
    If you are both full retirement age, then then you can use some spousal benefit options and still allow your benefits tol continue to accrue since you claimed on her benefits and not your own. Then you can both draw full benefits at 70 while you enjoy your spousal benefit from her in the mean time.

     

    Or you can reverse the roles. But only one spouse can claim and then suspend benefits.

     

    http://bit.ly/10AJOGW
    http://bit.ly/15aNz6o
    29 May 2013, 05:16 PM Reply Like
  • AgAuMoney
    , contributor
    Comments (4430) | Send Message
     
    @Cynical, thanks for the thinks. Nice summary info!
    29 May 2013, 09:37 PM Reply Like
  • raykrv6a
    , contributor
    Comments (2505) | Send Message
     
    Unless I go back to work, I'm going to collect SS at 62 in another year.

     

    Two pensions and like you, will collect 1800 a month starting at age 62. I'll just take some of the dividends if I want and reinvest the rest.

     

    Primary reason for taking SS at 62 is my wife passed away at 57 and won't get anything and I want to collect as I don't know how long I'll live. She was a health freak and I'm not, so you never know.
    23 May 2013, 11:06 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » Ray:

     

    Like you, I worry how long I am going to live. However, I am planning on living "forever" (dellusional of course!)

     

    Dave
    23 May 2013, 11:44 AM Reply Like
  • PendragonY
    , contributor
    Comments (5573) | Send Message
     
    Dave,

     

    I too plan to live forever. I suppose I will figure out how to deal with the embarrassment of needing money for fewer years than I planned, if it comes to pass that I don't live as long as I planned.
    26 May 2013, 01:18 PM Reply Like
  • rdtuck02
    , contributor
    Comments (346) | Send Message
     
    This series is great....thank you for initiating it. The ins and outs of SS benefits is still something that I find it hard to wrap my head around.
    23 May 2013, 11:22 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » 02:

     

    As I get closer to decision time, I am spending more time looking at the ins and outs of SS.

     

    Dave
    23 May 2013, 11:43 AM Reply Like
  • curreyr
    , contributor
    Comments (689) | Send Message
     
    David,
    I am far from facing the decision of when to start collecting SS since I'm only 47.
    The tax implications are a consideration I had not contemplated.

     

    It's my goal to have my income requirements met by investments regardless of SS. For that reason, I was intending to collect SS as soon as eligible and simply use it to further boost the portfolio (i.e. I feel I can outperform the performance over the 8 year wait).

     

    I will definitely give it further thought, thanks for the posting.
    23 May 2013, 11:35 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » C:

     

    Don't ignore the fact that depending on your income, SS benefits are taxable. If you are drawing SS and still working at age 62, you will have up to 85% of your benefit be taxed. There is a 15% exclusion to Federal taxes.

     

    Dave
    23 May 2013, 11:42 AM Reply Like
  • curreyr
    , contributor
    Comments (689) | Send Message
     
    I'm retiring at 55! (that's the plan, and so far on target).
    Start early, live frugal, eliminate debt, save and invest.
    It's so easy a caveman can do it!
    23 May 2013, 01:09 PM Reply Like
  • PendragonY
    , contributor
    Comments (5573) | Send Message
     
    Also don't forget that if you begin collecting SS benefits before your normal retirement age, each dollar in wages reduces your benefit.
    26 May 2013, 01:20 PM Reply Like
  • billinsd
    , contributor
    Comments (1425) | Send Message
     
    Gentleman,

     

    My ex wife is fighting cancer for the third time at age 59.
    She is in the fight of her life,as after the 13 days of chemo,you cant eat for a month.
    I have lost several friends to cancer,including one friend who inherited millions but died before probate was complete.
    I suggest everyone get a complete and total medical exam shortly before their 62nd birthday.
    Your health,how you feel,and your immediate goals should very much help you determine when to take SS.
    Having $600 per month more to only sit on a couch and be miserable is not my gameplan.
    I will spend and travel less as I get older.
    Retire Before VIAGRA guys....
    23 May 2013, 01:22 PM Reply Like
  • raykrv6a
    , contributor
    Comments (2505) | Send Message
     
    billinsd.

     

    I'm sorry to her about your wife's illness. I hope she does well with the treatments.

     

    My wife ignored the symptoms because of religious beliefs (Mind over Body) until it was too late and passed away a month after finding out she had cancer. I didn't have a clue until she was hospitalized.

     

    I totally agree that getting a physical and cancer screening is so important and takes little time compared to the risks of advanced cancer that is hard to treat.

     

    The new targeting cancer treatments that is in the news holds a lot of hope for the future.

     

    After this experience, I'm going to live for the near term and not plan too far ahead.
    23 May 2013, 01:47 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (13003) | Send Message
     
    "I didn't have a clue until she was hospitalized."

     

    ray, I'm so sad to hear this. You must have been crushed. :-(
    13 Jun 2013, 11:00 AM Reply Like
  • raykrv6a
    , contributor
    Comments (2505) | Send Message
     
    Thanks Robert.

     

    Actually I thought she might be having symptoms of dementia and was worried about that. Obviously it turned out worse. In speaking to several friends that have lost their wives, it takes a while to come to grips with it.

     

    .
    13 Jun 2013, 11:13 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (13003) | Send Message
     
    ray, I send you all my best wishes for the process of grieving for your wife. Don't rush it. As someone famous once said, "If you're going through hell ... KEEP GOING!".
    13 Jun 2013, 11:14 AM Reply Like
  • raykrv6a
    , contributor
    Comments (2505) | Send Message
     
    If there was one thing I did right, was getting the estate into a Trust figuring I would go first and make it easy for her. It's been worth every penny.

     

    I like that. 'If you're going through hell... KEEP GOING'.
    13 Jun 2013, 11:26 AM Reply Like
  • HackFab
    , contributor
    Comments (985) | Send Message
     
    As we all know, everyone has a different financial situation. My gripe with 'professionals' that want to manage my money (for a hefty quarterly fee), is that they want to determine what your situation is, based upon what investment options they can move you into.

     

    My plan is to not draw my SS until 70 (my benefit is reduced anyway, at last calculation it is a bit over $400 a month at 70). And not have my wife draw her SS until she turns 70 (currently calculated at age 70 at $2200 monthly). Which is four years after she retires. We both plan to retire June 2017 (I'll be 67, she'll be 66).

     

    She will not take a survivors annuity (reduced benefit) on her pension upon her retirement (in four years). If she dies before me, I get a 'raise', as my pension returns to 100%. Negating a need for her having a survivors annuity. I can never collect a survivors benefit on her SS, as it is offset against my pension.

     

    We will make no withdrawals from either of our IRA's until we are required to make RMDs. Dividends from our taxable account will be used if necessary.

     

    If I die before 70 (My pension will be cut by approximately 55% the month I stop breathing), she can then begin drawing her SS and withdrawing money from the IRAs, if she needs to financially.

     

    That's my plan right now. Things do change....
    23 May 2013, 04:35 PM Reply Like
  • jzlaker
    , contributor
    Comments (3) | Send Message
     
    I don't think this analysis considers a DGI investor who could delay switching from accumulation to distribution a few more years by taking social security early. I would assume the compounding effect would outweigh the increase in SS payments.
    23 May 2013, 06:18 PM Reply Like
  • giorgiolb
    , contributor
    Comments (5384) | Send Message
     
    Dave,

     

    Interesting thoughts on a complex issue.

     

    Changes in tax laws and SS itself can throw a monkey wrench into the best of retirement plans however.

     

    I'm personally leaning toward the strategy of taking the reduced SS benefit at 62 while I'll still have time to enjoy it....
    23 May 2013, 06:18 PM Reply Like
  • Amerlafrance
    , contributor
    Comments (482) | Send Message
     
    My concern with delaying benefits is whether as more of us boomers start taking benefits the govmint will finds ways to cut the benefits (maybe not outright, but changing the taxability, growth for delay, or counting "annuity equivalent" in your IRA as a reason to reduce benefits). If I start early, I will preserve more of my own funds (and those can pass to my children, while SS benefits end with me) and assure I get back as much as I can for the "contributions" I have made already. The risk of my death before 70, or shortly thereafter, and using up my own funds give me pause about early use of my IRA and delayed SS no matter what a hypothetical model says. But I am still a year away from taking, so this idea is interesting and I look forward to the debate in the comments and your future articles on the topic. Well done.
    24 May 2013, 12:08 AM Reply Like
  • AgAuMoney
    , contributor
    Comments (4430) | Send Message
     
    It gets even more complex when you consider spouse social security and spousal benefits from your social security.

     

    I am on the 67 for full benefit calendar. My wife is 5 years younger and is expecting a much smaller benefit.

     

    As I delay filing past 62 (up to 70), not only does my benefit get larger, but so does her spousal benefit based on my earnings. The increased benefit continues for the longest living.

     

    One approach would be for her to file for her own reduced benefits as soon as possible (the year I am eligible for full benefits). (Maybe I could file for spouse benefits from her social security?) Then 3 years later I could file for my own max benefit. If at any point I die before claiming my benefit, my understanding is she could start spousal benefits at that point.

     

    Another approach would be for me to file and suspend, allowing her to claim spousal benefits. I'm not sure how that affects my benefit growth or her spousal benefit size.

     

    A spreadsheet or sheets modeling all the what-if's in their various combinations can help to visualize the alternatives. But that is a large effort to develop and while it seems someone would have already done it so I could plug in my numbers, I haven't found such a spreadsheet.

     

    The choice is definitely not simple. And while the SS alternatives have much of the complexity of an annuity there is no legally enforcible contract. As Amerlafrance points out, it might make sense to claim as early as possible simply because the rules might change and preserving assets with less dependence on government increases the chance of retaining those assets thru such rule changes.
    24 May 2013, 08:53 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » Ag:

     

    If I accomplish anything with the discussion of Social Security I would hope that I would make it clear just how complex the decisions that we will make are.

     

    I am going to sit down with my CPA and estate lawyer later this year to get some solid advice and then put together a game plan that makes sense.

     

    I want to get a discussion going and have some impact on helping people make the right decision for themselves. It is very complicated and it is fraught with mines.

     

    Dave
    24 May 2013, 09:01 AM Reply Like
  • Amerlafrance
    , contributor
    Comments (482) | Send Message
     
    welath track had a show on social security (I'll try to find and post link, but their new website is less intuitive than the old version) a month or two ago that was a good starter and had some recommended websites and a fee for service recommendation. I know that estate planning attorneys have not studied SS, they have maninly worked with high end people that don't worry about that. With the boomers reaching 62, that seems like a possible growth area for study.
    24 May 2013, 09:26 AM Reply Like
  • Amerlafrance
    , contributor
    Comments (482) | Send Message
     
    here it is, time flys. ****://wealthtrack.com...
    24 May 2013, 09:32 AM Reply Like
  • Lewislnc
    , contributor
    Comments (54) | Send Message
     
    David, good read and lots of questions to ponder! Spouse/widow benefits start at age 60, unless underage children. I checked the widow benefits on the social security site and the percentage increases with every year the widow delays. Like you, I will probably have to have my CPA figure out the best plan of action, regarding taxes and my pension, and if I should collect his till 70 and then switch to mine. However, after my husband passed away at 56, it has given me thought as to enjoy life a little more between now and 70, while I still have the physical ability to do physical activities. Losing a spouse at a young age changes the viewpoint. Thanks again for all the hard work and research, I look forward to your next blog.
    Linda
    24 May 2013, 10:41 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » Linda:

     

    Sorry for your loss. I would tend to agree with you that taking the time to enjoy life before we get the a point where we can't really do things is a great idea!

     

    My wife is younger than me, so she is still in the career mode and doing very nicely. My career mode ended about 10 years ago and now I have a job that I am growing weary of doing more and more each year.

     

    My hand eye coordination is still good and I've just bought a new motorcycle (my wife will not ride with me) and I told her, I think when I retire next year, I'm heading out west on the bike for about three months.

     

    She was not happy with my plans.

     

    However, there will very likely come a day that riding the Gold Wing will be a major undertaking and I won't be able to do it. As it is, now that I can--why not do it?

     

    There are so many places that I'd like to visit and so little time. Fortunately, my wife now makes more money than I do (she just got an incredible promotion today) and I'm trying to convince her that now that the kids are gone (yeah, right) that I should be able to work a lot less than I do now.

     

    Dave
    24 May 2013, 10:49 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (13003) | Send Message
     
    Dave, congratulations on your wife's promotion!

     

    Robert
    13 Jun 2013, 11:02 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » Robert:

     

    She is very excited about it! My son went to and graduated from the high school where she will be the Assistant Principal. The best part is that since she is the Assistant P, I won't have to pay to go to their football games anymore! I get a "pass" to wear around my neck and I can just walk in!

     

    Dave
    13 Jun 2013, 11:16 AM Reply Like
  • HoldenTodd
    , contributor
    Comments (16) | Send Message
     
    David,
    You raise a very important issue. In fact, for many people it is more important than their investment portfolio.
    We decided to wait on taking my husband's benefit until he was 70 to maximize his benefit and my spousal benefit. In the meantime, he (at age 66) collected a spousal benefit on my record. Our decision was guided by reading articles written by Laurence Kotlikoff who is a professor of Economics at Boston University. If you search for his name and social security you will find lots of articles. Also, he has a web site called Maximize My Social Security. It does charge an annual fee. I do not have experience with it since we made our decision before it was available. However, we did use Kotlikoff's financial planning software called ESPlanner back when we were making our final retirement plans. We found that software very useful.
    Also, you mention that you plan to consult your CPA and attorney. I hope your professionals, in particular the CPA, are better informed on these matter than the ones we have been able to find.
    24 May 2013, 11:24 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » Holden:

     

    The CPA is a guy who runs all the numbers for me. He is my mathematical genius who does my taxes which are very complicated because I have a job, three businessess, real estate holdings, and just recently a natural gas well on my property. Needless to say, Turbo Tax cannot handle my tax situation.

     

    As for the estate guy, his expertise is in sheltering wealth from the Feds. His name is David E. Miller and he wrote a very good book that deals with Trusts. He did my parent's Trust and has set me up with one as well.

     

    SS is a very complex matter and should not be taken lightly. It's not as simple as just signing up and collecting benefits. I wish it were, but over the years, SS has morphed into one of the most complex things one can imagine--especially when you are married.

     

    You really need to think about (discover) all the ramifications of SS before you go off into the retirement years and find you've made a big mistake.

     

    I have seen the SS planner that you mention. I think it's $49 bucks to run your scenarios and I am thinking very seriously about running mine and seeing what it shows me.

     

    My wife just got a huge raise and she is 50. So, if she continues to work for the next 15 years, her SS benefit may in fact actually end up better than mine. I doubt she will work that long, but that creates another nuance to the issue.

     

    Sometimes I think being an adult sucks.

     

    Dave
    24 May 2013, 11:46 AM Reply Like
  • Lewislnc
    , contributor
    Comments (54) | Send Message
     
    David, head west, young man! She could bring a friend and follow in a car. I would do it while you can, leave this world with no regrets. One thing I learned from my husband(7 yrs older), make the most out of every minute. There is nothing you can't learn or try. I was a single mom with 2 kids, he with none and he had done every adventure before we got married that he wanted to do. I, on the other hand, had neither the money or time to miss from work. He greatly improved our lives in every way and we were enjoying the freedom of having kids grown and starting the next phase of our life. You and your wife's situation is similar to ours, perhaps you could persuade her by telling her all the benifits that would come from you being home more; washing, cooking, cleaning, running errands for her! Good luck, and have a wonderful Memorial Day weekend! I am heading to Big Bend, never been there, one more item off the Bucket List, Woohoo!
    24 May 2013, 07:24 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » Linda:

     

    There was a time where I was between jobs. I thought I did pretty good as a housewife, but I never realized how much work it was. The bad part was I got addicted to Ophra and at 4:00 my world came to a stop to see my girl.

     

    We have always wanted to do an Alaska cruise, so we are going the first week in July. My wife and I are cruise junkies and usually we are doing warm locations like the islands. But, this is one we have both wanted to do.

     

    I am planning an African safari for us in two years. We will go for 21 days. It's a suprise, but again something that we've always wanted to do.

     

    Dave
    24 May 2013, 07:48 PM Reply Like
  • Lewislnc
    , contributor
    Comments (54) | Send Message
     
    Dave, being the housewife is hard work, the trick is to not turn on the TV. I will be unemployed at the end of June. I have decided to make a list and get in a routine of staying busy. I have never been on a cruise, but, my cousin asked if I would go on one. I told her at least one to see if I like it. My aunts and uncles are addicted and they told me I need to try it, so will see. I would like to drive all the way to Alaska. How many days would that take from Texas?
    Linda
    28 May 2013, 10:01 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » It would take a bunch of days!

     

    One tip for you about cruises. If it doesn't matter when you go, check out the prices on Carribean cruises during the first two weeks in December. You will save a bunch of money, because kids are in school, the holidays are coming up, and the boats are not full.

     

    We took a cruise out of Puerto Rico that visited American Virgin Islands, Domenica, Barbados, Aruba, and someplace else that my old mind can't recall.

     

    There are lots out of Galveston as well. But, if you can get to Miami, you can get some very nice excursions and the weather in December is still very nice.

     

    I drove from California (San Francisco) to Alaska back when I was young. The road was great until we got to Canada and got on the Al-Can Highway. Hopefully, that road is improved, but it was not fast or fun back in the day.

     

    Good luck!

     

    Dave
    28 May 2013, 10:48 AM Reply Like
  • curreyr
    , contributor
    Comments (689) | Send Message
     
    I've driven the alcan many times. It is completely paved now (other than sections being worked).
    From the canada border north, figure about 600 miles per day (10 hours per day driving).
    28 May 2013, 10:54 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » C:

     

    THAT is good news. It wasn't paved when I drove it! But that was almost 40 years ago!

     

    Dave
    28 May 2013, 11:06 AM Reply Like
  • curreyr
    , contributor
    Comments (689) | Send Message
     
    My first was in 1974. It's completely different drive now. From Northern CA to Anchorage is about 5 day drive instead of 2 weeks.
    28 May 2013, 11:19 AM Reply Like
  • Lewislnc
    , contributor
    Comments (54) | Send Message
     
    Dave and C,
    Thanks for the tips, it sounds like it can be done! Linda
    28 May 2013, 01:22 PM Reply Like
  • Buck Turgidson
    , contributor
    Comments (31) | Send Message
     
    David,

     

    Thanks for starting the discussion! The Mahany white paper is worth reading and is available online as a PDF.

     

    I am 60 and plan on retiring at 62. I have set up a horribly complicated spreadsheet to assess various social security options. It is specific to me, so not useful to share, but the basics are pretty easy to set up.

     

    You can obtain your earnings history from the SSA website, and the formula to estimate future benefits is pretty simple (you have to learn about "Bend Points" and other social security trivia, though).

     

    I've analyzed numerous social security scenarios, with the extremes being the obvious - start at 62 and start at 70. If you have the resources to fund the 8-year gap (investments, job, etc.) then the 8% inflation-adjusted bump per year in SS benefits is hard to beat, especially if the lower-earning spouse is younger, healthier, etc. than the higher-earning spouse.

     

    My intention has been to wait until 70, and my portfolio is currently structured to fund about 8 years living expenses from short-term bonds, with the balance in equities, etc.

     

    But jzlaker's comment:

     

    "I don't think this analysis considers a DGI investor who could delay switching from accumulation to distribution a few more years by taking social security early. I would assume the compounding effect would outweigh the increase in SS payments."

     

    does throw a wrinkle into the analysis.
    25 May 2013, 08:42 AM Reply Like
  • raykrv6a
    , contributor
    Comments (2505) | Send Message
     
    Buck, I would appreciate posting your results after looking into the new wrinkle.

     

    Thanks!
    25 May 2013, 11:40 AM Reply Like
  • Buck Turgidson
    , contributor
    Comments (31) | Send Message
     
    Sure. Keep in mind that this is very preliminary, take it with a grain of salt, etc. I'm going to have to do a bit more work to adjust the spreadsheet to more fully evaluate this.

     

    First, my wife is four years younger than me, which means that she can file for benefits at 62 and I can file for spousal benefits almost simultaneously at my full retirement age. I estimate that the "break even" point for our combined social security income with me starting at 62 versus 70 is about 78 or so, under that kind of filing.

     

    So the analysis compares my retirement at 62, collection of SS at 62 versus 70, and spending down part of the portfolio as needed to fund retirement. Drawing SS at age 70 appears to push the portfolio value "break even" point out further into the future than drawing SS at 62.

     

    In the case of the parameters I used here, the 62-draw portfolio value is exceed by the 70-draw portfolio value at about age 88.

     

    Please note that I used many, many simplifying assumptions in this. Since SS is inflation-adjusted, I used constant dollars and assumed fixed portfolio return and dividend growth rates over inflation. Not very real-world but good enough to show patterns.

     

    Bottom line: Social Security is way more complicated than it should be and strategies are very dependent on individual circumstances. As to whether to draw at 62 or 70? Mark me in the undecided column.
    26 May 2013, 11:18 AM Reply Like
  • raykrv6a
    , contributor
    Comments (2505) | Send Message
     
    Buck, my situation is simpler for sure since it's only for myself now.

     

    Right now, my retirement assets are mostly tax sheltered in IRA's and 401k's. I haven't looked closely, but I sense that I'm better tax wise leaving the money in the tax deferred accounts and taking the early SS.

     

    Of course, I might need a second cup of coffee now and change my mind.
    26 May 2013, 11:47 AM Reply Like
  • dividendbonanza
    , contributor
    Comments (397) | Send Message
     
    Dave, thanks for another thought provoking article. I did a little reading and realize this subject is way more complex than I imagined. I'm thinking of subscribing to "Maximize My Social Security" - not as the definitive answer to my questionS, but as a resource to broaden my perspective.

     

    I'll eventually do as you are and consult professionals - a CPA and estate planning specialist. We work so hard to get to the retirement stage it only makes sense to to invest the time and money to maximize the assets for ourselves and to pass along.
    26 May 2013, 02:41 PM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » Bonanza:

     

    I'm 64. I want to retire. I need to figure out the best plan for me and the wife.

     

    It seemed with her teacher's salary that she would have been better off taking half of my SS. With her new, job and a big raise and at least 10 years for her to be working, I'm wondering if I might as well take mine at my FRA (66) and let her take hers as it will me much more for hers than it is right now.

     

    The more I read, the more confused I get.

     

    Dave
    26 May 2013, 05:33 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (13003) | Send Message
     
    Another reason to withdraw money from an IRA between age 59.5 (when you can withdraw without penalty) and age 70.5 (when the RMD's begin) is to reduce the size of the IRA, which reduces the size of the RMD's.

     

    Leave it up to the gubmint to have created the most complicated, most confusing, most opaque, "system" to "provide" for citizens' retirements. :-(
    13 Jun 2013, 11:07 AM Reply Like
  • David Crosetti
    , contributor
    Comments (10234) | Send Message
     
    Author’s reply » RAS:

     

    The good news in this is if you can do this and postpone SS until you are 70, you will get a much bigger paycheck than you would at your Full Retirement Age.

     

    Also, if you have 200k or more in your tax deferred retirement account, you need to investigate leaving the account to your children in the form of an IRA Inheritance Trust. While they will have to withdraw money based on their life expectancies, they will have a lower RMD than the original owner and with moderate DGR increases, that 200k portfolio can grow to $700k by the time they are retirement age.

     

    An additional benefit is that their RMD's can be reinvested into a Roth and let that money continue to grow.

     

    Dave
    13 Jun 2013, 11:20 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (13003) | Send Message
     
    "if you can do this and postpone SS until you are 70, you will get a much bigger paycheck than you would at your Full Retirement Age."

     

    Dave, that is my evil plan. :-)

     

    I hope to withdraw between 59.5 and 70.5 such that:
    a) my tax bracket is lower during that interval than now, while I'm working;
    b) I roll over some or all of the withdrawal into a Roth; and
    c) I invest that rolled-over money into the same dividend growth companies that I sold to produce the money for the withdrawal!

     

    I think it's a win-win-win situation! :-)
    13 Jun 2013, 12:03 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.