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So confused about Social Security

rapmarks

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Pigsdad has touched on a subject I truly believe makes all the difference in retirement. You live a careful life with money, you will be okay in retirement. We too lived in modest homes, drove cars for a long time, and put money into iras , savings accounts, etc. we retired in fine shape. The sticker shock is health insurance and that was true in 1999 too. At that time we spent about twelve thousand out of pocket, we had a brief dip when we went on Medicare and had good supplemental, then up again to about sixteen thousand a year because supplemental is not as good, and the government penalizes people who saved for their retirement by RMD, raising Medicare premiums, tax on investment income over a certain amount, blah, blah, blah. We feel we have saved enough to self pay for nursing home. My mother, mother in law, two aunts all self paid for years, they never were well off, but they were always careful with spending, and yes they did travel a lot.


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vacationhopeful

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Most realtors have found that being the listing agent is BETTER than looking and working with buyers. A buyer is never perfect as they will walk thru an Open House and BUY it ... without a call to the agent who has shown them 100 houses. Or they can't pass on income, because they are selling pot and not flower pots.

If you (as the listing realtor) have the seller under contract, pay for a few pictures ... it sells via MLS ... the listing agent gets $$$$$. That listing agent's best words of advice are, "Let's reduce the PRICE." And my favorite line is, "This is your recommended GREAT PRICE to sell ... and I TOOK $10,000 off your PRICE and listed it. YOU better work at getting it SOLD."

And then after calling out your realtor, you find another listing agent who USUALLY does mostly the same thing ... again.

In interviewing NEW listing agents... they all say they looked thru the current listing ... needs better pictures (which they promise), needs a bigger sign (duh, so did the agent who has the listing .. ain't shown up yet as THEY might not be allowed a bigger sign or multiple signs on road frontage in this town ... and I bet I have to PAY for that, too), etc.

AND many of the new applicants for listing agent have said ... "oh, we will review the activity on the house with you every 2 weeks and decide how to proceed" ... that translates into "Let's lower the price." or "Let's offer a buyer incentive ...which becomes seller gives back cash at settlement to pay closing costs ... AND lowers the price".
 

PigsDad

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I used the Fidelity one extensively but one flaw in their calculation is that it assumes linear growth model as opposed to Monte Carlo model. My Financial Advisor/Manager runs the scenario through their system which uses the Monte Carlo model which is more realistic, as whatever realistic is.
I believe the second calculator i recommended, personalwealth.com, uses the Monte Carlo model which does indeed give more realistic ranges for future growth. I would always recommend using multiple retirement calculators and look at the differences in the results.

Kurt
 

VacationForever

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I believe the second calculator i recommended, personalwealth.com, uses the Monte Carlo model which does indeed give more realistic ranges for future growth. I would always recommend using multiple retirement calculators and look at the differences in the results.

Kurt
Domain name does not exist...
 

VacationForever

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My guess is that it's the personalcapital.com retirement calculator, which is very highly rated.
Found it. It asks for account name, number, positions etc.. definitely not something I want to disclose to some 3rd party site. Its goal is to have user pay for its advisory services. No dice.
 

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Pardon my dropping in here but this thread is timely for me in that I am looking at retiring in 7 years. One aspect I am very uncertain about is insurance for those retired. I know there is Medicare but with all I hear about its shortcomings, it seems likely Medicare would be insufficient.

It all depends on the choices you make with Medicare. Costs are less if you go with one of the Medicare Advantage Plans. IMO the disadvantage of Medicare Advantage is being limited to the Network of the entity offering the plan. I would rather have the ability to be treated at a "Center of Excellence" if necessary which may not be possible depending on your Advantage Plan.

If you go with traditional Medicare, you have the flexibility of using any Doctor or Hospital that accepts Medicare. The large proportion of both currently do accept Medicare.

Then you get into the cost. Medicare Part A (essentially hospitals) doesn't cost you anything (of course you paid into it all your working life); Medicare Part B (doctors, etc.) can be pretty expensive depending on your income; then there is the cost of a Supplemental Policy (covers stuff Medicare doesn't) and Part D (prescriptions). Be ready. All of this adds up. On the other hand if you have all of these, you have pretty comprehensive coverage.

George
 
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Luanne

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Medicare Part B (doctors, etc.) can be pretty expensive depending on your income;
When dh turned 65 he was still working, and my employer insurance covered him. When I retired (at age 62) dh needed to get Medicare Part B and a supplemental plan. Because he had been working up until that time he was assessed the highest possible premium for Medicare Part B. We both had to go into the Social Security office to show that neither of us was working any longer, and he was able to get the premium reduced. When I became eligible for Medicare since I hadn't been working for the two years prior, my premium was already at the lowest amount.
 

Sugarcubesea

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Sugarcubesea ....
The realtors are going to shop "off the books" my lots for MULTIPLE months BEFORE doing any real subdivision work....while I pay the real estate taxes, mow the grass and wait. They could say anything and just walk away from the paperwork. They are NOT paying me $10,000 nonrefundable deposit (ernst money upfront) ... they could say, the subdivision approval work is running slow ... needs to be re-presented to the board, etc.
And that is why I am looking for a new realtor ... you had a chance to "shop the lots" ... I called that time the last 7 months.
I would definitely look for new realtors. It sounds like they are stringing you along. I had a realtor come out and appraise my parents house and they felt that because my parents never updated the kitchen that I should offer it for $80 less that what the tax appraisal is. Yep, said good bye to that person
 

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My guess is that it's the personalcapital.com retirement calculator, which is very highly rated. You need to give them a lot of information on your finances (like Mint.com), which some people are uneasy with.

Here are some reviews: https://www.google.com/search?q=per...roid-motorola&sourceid=chrome-mobile&ie=UTF-8
Yes, that is it. The site has been recommended by several financial magazines (not just advertisements), so I gave it a shot. Yes, they do try to get you to sign up for advisory services, but I just had to refuse them once and they have never bothered me again. So far I have been happy with the tool, but it isn't for everyone.

Kurt
 

VacationForever

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Yes, that is it. The site has been recommended by several financial magazines (not just advertisements), so I gave it a shot. Yes, they do try to get you to sign up for advisory services, but I just had to refuse them once and they have never bothered me again. So far I have been happy with the tool, but it isn't for everyone.

Kurt
It is fairly inflexible tool as it asks for fine details of holdings if you do not provide your account information. I don't invest directly and although I have those information it means I have to dig, plus my holdings change regularly as they are all managed funds. Not a tool that I can use. But I can see how it may be useful for some.
 

isisdave

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I strongly suggest that you fill in this form with your actual earnings record:

https://www.ssa.gov/pubs/EN-05-10070.pdf

In particular, look at Step 5, which illustrates how the benefit is skewed toward lower incomes. If your Average Indexed Montly Earnings (AIME in SS-speak) is at least $5336, then you're in the 15% bracket. At that point, increased earnings have only a minor effect on your benefit, and I wouldn't worry too much about itl

SSA replaces 90% of the first $885 of AIME, then 32% up to $5336, and then only 15% of anything over that. So, as long as your AIME is over $5336, then even if the additional income goes directly into your average - e.g., you haven't yet reached 35 years - then each additional $1000 of income will increase your benefit by slightly less than 36 cents per month. An extra $100K yields an increase of $36 per month. That's not nothing, but it's a very reduced response.

Bob, who has always been good at math.


I found this publication several years ago when asking similar questions. It's very helpful. I even made a spreadsheet out of it, which permitted me to see what my 36th highest year was, which is the amount you'd have to make to increase your benefit based on earnings.

Note that this particular version is for folks born in 1955. If you were born in another year, you should find the form for that year. The numbers (885, 5336, and the factors for each year) are different for each birth year.
 

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Others can correct me, but I believe as long as you have 35 years of income, having no income the last few years before collecting will not affect your benefit. However, if you continued to work, those last year's income would replace some of the lower income years in your 35 year history, so your benefits could increase. Hope that made sense.

Kurt
I ran numbers on this a few years ago, pretended that I would work to age 70 and make a mil each year (not bloody likely!) The difference was minimal. What helps is putting off taking it, 8% boost in payment every year you hold off. I'm trying to retire before 60 and hold off to 70 on taking SS. Health care is indeed the big issue, not normal projectable living expenses.
 

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Interesting to me the large number of people who plan to retire early, at age 62 or even younger.

How confident are you that your savings will last a lifetime (or two lifetimes with your spouse)?

There are lots of retirement income calculators, but the simplest rule of thumb is you can maybe safely withdraw 4% per year of what you've saved.

Assume your social security benefit will be $18,000/year starting at age 62 (equivalent to about 24,000 at age 66).
How much have you saved?
Is that enough to live on?

Savings = $ 500,000
Soc Sec + Investment Income at age 62 = $38,000
Healthcare and income tax = $10,000
Spendable Income $28,000


Savings = $1,000,000
Soc Sec + Investment Income at age 62 = $58,000
Healthcare and income tax = $10,000
Spendable Income $48,000


Savings = $2,000,000
Soc Sec + Investment Income at age 62 = $98,000
Healthcare and income tax = $10,000
Spendable Income $88,000

Quite confident. Aiming for retirement on day I hit 59.5, just under 8 years from now.

Savings has little to do with it for me, income from investments is what I will live off of. I understand the 3-4% sell off stuff, but that's not my deal. The stock shares I keep accumulating each pay a dividend and collectively they are on track, as I sit today, to gain full salary replacement. That doesn't count the 401k that will be rolling to largest nest egg in a month or so. can't wait to put that to work.
 

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I
Conan - Not that I'm doubting you, but where did you get 4% from...

My job doesn't have a pension... So it's up to me to save, I have 401K, Roth IRA, IRA, and Cash/Margin Brokerage accounts. I get a bonus every spring and use it to max my wife and my Roth Accounts, We put only enough in our 401K to get the max matching funds, we both have IRA's from rolling 401K's from previous employers and we have standard investment accounts.

I could say I have made one of my life's hobbies option trading, and have done well trading. In your scenario of using just 4% of savings, are you saying this amount before earnings on those savings or after? Because I generally consistently do better than 4% by several percentage points. At 4% I would say your guaranteeing you will never run out of funds and will die with more than you retired with.

My thought process was to quite the grind of corporate world within 7 years then do something on my own till ready to draw SS Several years later. I see this being possible if my primary home us paid off and my savings goals are achieved.
I'm with you, Breeze. Once my mortgage is retired, I can plow well more into taxable account, that has received much less than tax shelters over the years. At some point, divs are footing the bills so I can wave bye bye to cubeville. Maybe I fiddle around and do nothing or maybe I get a "fun job" or just play all the time.

I don't do options, but I am a stock lover. Div increases often more than 4% but varies by company.
 

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Pigsdad has touched on a subject I truly believe makes all the difference in retirement. You live a careful life with money, you will be okay in retirement. We too lived in modest homes, drove cars for a long time, and put money into iras , savings accounts, etc. we retired in fine shape. The sticker shock is health insurance and that was true in 1999 too. At that time we spent about twelve thousand out of pocket, we had a brief dip when we went on Medicare and had good supplemental, then up again to about sixteen thousand a year because supplemental is not as good, and the government penalizes people who saved for their retirement by RMD, raising Medicare premiums, tax on investment income over a certain amount, blah, blah, blah. We feel we have saved enough to self pay for nursing home. My mother, mother in law, two aunts all self paid for years, they never were well off, but they were always careful with spending, and yes they did travel a lot.


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The only thing here that doesn't sound right to me is RMD as "penalty". IRAs were designed for retirement savings and so tax code has decided that one should begin drawing money by 70.5

There needs to be a sunset on how long a retirement shelter can go. You don't have to spend the money, you just have to remove from shelter and pay the piper.

It's difficult for me to see it as a penalty, but I have benefitted greatly over time from contributions from employer to my 401k. Because of this, I can't gripe about having to take money out. In fact, in my early years of retirement I will probably be drawing divs from the IRA along with taxable portfolio as I don't think it will be possible to grow the taxable to same size as 401k/IRA after mortgage paid off.

I saved aggressively in my 401k and gained the wage-year tax benefit. The piper was always going to be paid, it just so happens that IRS says it must start by 70.5. It is hard for me to consider cracking cash out of shelter as punishment. I have the money, where is the punitive part?
 

VacationForever

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The only thing here that doesn't sound right to me is RMD as "penalty". IRAs were designed for retirement savings and so tax code has decided that one should begin drawing money by 70.5

There needs to be a sunset on how long a retirement shelter can go. You don't have to spend the money, you just have to remove from shelter and pay the piper.

It's difficult for me to see it as a penalty, but I have benefitted greatly over time from contributions from employer to my 401k. Because of this, I can't gripe about having to take money out. In fact, in my early years of retirement I will probably be drawing divs from the IRA along with taxable portfolio as I don't think it will be possible to grow the taxable to same size as 401k/IRA after mortgage paid off.

I saved aggressively in my 401k and gained the wage-year tax benefit. The piper was always going to be paid, it just so happens that IRS says it must start by 70.5. It is hard for me to consider cracking cash out of shelter as punishment. I have the money, where is the punitive part?

The penalty she was referring to is the Medicare Part B and D premium. As a single, if you have MAGI (all income) above $85K you pay a higher premium. For married filing jointly it is 170K per year. My husband was paying the maximum Medicare premium while we were working. It was $504 per month this year until we sent in a letter to indicate that we now have no more income and his premium dropped back to $134 per month.

So when you start RMD, and your RMD + Social Security exceeds $85K a year, you no longer pay the "standard" Medicare premium. These are the two tables for Part B and D:

https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html

https://www.medicare.gov/part-d/costs/premiums/drug-plan-premiums.html
 

rapmarks

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Yes you pay more for Medicare, if you have more income, you pay higher taxes too . Foolish us, we were in a low tax bracket and saving money in tax advantaged accounts, now we are in a higher bracket than when we put the money away. We do pay max Medicare, we have all the extra taxes that hit for dividends and capital gain distributions, alternative minimum taxes. One year, I got surprise distribution end of calendar year. The fund price went down after the distribution, so I had no more wealth, but a big tax bill. I owed forty thousand I additional income tax. That was bad enough. But I had to make sure I put in an additional forty thousand that year to make sure I had sufficient taxes,so had to come up with eighty thousand . Really became cash poor, or cash empty because everything we have automatically reinvests. Now we just send entire RMD in to IRS as well as the percentage we take out of pensions. I would say the money we put away to save us ten or fifteen percent taxes , costs us about 15or 20 thousand a year.


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VacationForever

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Yes you pay more for Medicare, if you have more income, you pay higher taxes too . Foolish us, we were in a low tax bracket and saving money in tax advantaged accounts, now we are in a higher bracket than when we put the money away. We do pay max Medicare, we have all the extra taxes that hit for dividends and capital gain distributions, alternative minimum taxes. One year, I got surprise distribution end of calendar year. The fund price went down after the distribution, so I had no more wealth, but a big tax bill. I owed forty thousand I additional income tax. That was bad enough. But I had to make sure I put in an additional forty thousand that year to make sure I had sufficient taxes,so had to come up with eighty thousand . Really became cash poor, or cash empty because everything we have automatically reinvests. Now we just send entire RMD in to IRS as well as the percentage we take out of pensions. I would say the money we put away to save us ten or fifteen percent taxes , costs us about 15or 20 thousand a year.

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I hear you loud and clear. My thinking has usually been one step behind, i.e., not thought through on investment decisions and tax implications and after the investment has been done, then I went oooooooops. The way federal taxes are structured is flawed. There is no capital gains tax if ordinary income tax bracket is at 15% or below, in $ terms income of max $37,950 for Singles and $75,900 for Married filing jointly after deductions.

So one can have a ton of investments that generate high capital gains $ but as long as the one has little ordinary income, then no capital gains is payable. Technically for an early retiree or even one who is below 70 and not started RMD (assuming high RMD), and if SS is the only income, the taxable investments gains are not taxed as long as they are classified as long term gains. My understanding of how dividends are treated is not clear.
 

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On an earlier thread about retirement here someone had mentioned
http://www.early-retirement.org/

I'm very much under the impression that many posters there had higher than average paying jobs than average. They post/discuss things that I wouldn't have thought of. Lots of learning to do.
 

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The penalty she was referring to is the Medicare Part B and D premium. As a single, if you have MAGI (all income) above $85K you pay a higher premium. For married filing jointly it is 170K per year. My husband was paying the maximum Medicare premium while we were working. It was $504 per month this year until we sent in a letter to indicate that we now have no more income and his premium dropped back to $134 per month.

So when you start RMD, and your RMD + Social Security exceeds $85K a year, you no longer pay the "standard" Medicare premium. These are the two tables for Part B and D:

https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html

https://www.medicare.gov/part-d/costs/premiums/drug-plan-premiums.html


Unless I'm missing something at 59.5 I pull as much money as I can each year from IRA/401K, still keep my self in a reasonable tax bracket and roll it all to my ROTH IRA. Yes I pay taxes on withdraws but I move it to an account that earns tax free from that point. If I can get a large chunk moved by 65 Medicare age, I'll no longer have earnings on anything the Roth earns other than dividends. So this should not effect my MAGI thus helping me keep below the thresholds you have posted.
 

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Unless I'm missing something at 59.5 I pull as much money as I can each year from IRA/401K, still keep my self in a reasonable tax bracket and roll it all to my ROTH IRA. Yes I pay taxes on withdraws but I move it to an account that earns tax free from that point. If I can get a large chunk moved by 65 Medicare age, I'll no longer have earnings on anything the Roth earns other than dividends. So this should not effect my MAGI thus helping me keep below the thresholds you have posted.
Yes. You sort of got it correctly. But don't forget that Medicare at 65 looks at income tax for year ended at 63. If you exceed the MAGI amount that I have listed below, it will send you a bill for higher than standard amount. There are some exceptions where you can appeal and show that if that income at 63 was from employment and that you are retired at 65, they will move you back to standard rate. Fluctuations in investments returns does not get you a waiver. I do not know how they treat withdraw from IRA amount as to whether you will qualify for the waiver, that is assuming you are planning to go above the standard MAGI ceiling of 75K(Single)/170K(Married filing jointly).

If you withdraw from Roth IRA, I believe those amounts may add towards MAGI. MAGI is supposed to include tax-free dividends, but I don't remember what is said about Roth IRA. Since we don't have Roth IRA, I have not spent time to understand the implications.
 

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After you have met time requirements on the ROTH their is no earnings involved for tax purposes. So I don't see how it would count
 

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You don't need to wait until you're 59.5 to convert a traditional or rollover IRA to a Roth IRA.
There is no 10% early distribution penalty on amounts converted. In fact, the sooner the better.

The issue whether the taxes saved with a Roth will exceed the taxes paid for the conversion.
For us, the answer was that the conversion would cost more than we'd save, even w/reduced RMD's.

.
 
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I know.... But if I do it before I early retire, the tax implication would be huge while still working. If I wait till I am not working, then I would move it at a rate to keep at 27% or less.
 
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