So confused about Social Security

[rapmarks]

I could have prepared more detailed examples. Of course social security is never fully taxable, and many retirees favor tax-exempt investments. If you want to use $20,000 or $40,000 for income tax and healthcare (Parts B, D and a supplement) feel free.

Which gives more support for the concept that one should look before leaping into early retirement.

I helped a retired friend with her income tax. With almost no income beyond social security and minimum required distributions, she spent a pretty big chunk on supplemental insurance. I don't know how she does it on her income.

When you have a good retirement income, and enough savings to produce income, you pay higher rates for Medicare, and additional taxes on your investment income, whether they are tax sheltered or not.


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[VacationForever]

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)?

I absolutely agree. I wanted to work until I am 62 but my spouse wanted to retire and since we shared the business 50-50 and he wanted to sell so that he could retire, there went my job too. He is a little older than me and I do get it that he does not want to work anymore. We are fortunate that we are able to afford to be retired and still see the world - timesharing and cruising, we spend maybe 6 months a year cumulatively at home. Travel and entertainment is about half of our expenses. We don't live a lavish lifestyle otherwise, and we share 1 car.

Retirement takes planning. I had all sorts of what-if scenarios on a spreadsheet for about 10 years before we retired. In our case, I bought future income annuities with my IRA when our business was sold. This income will start when I turn 60 and will act as a buffer to fluctuating stock market and to provide a diversified portfolio. Between my spouse's Required Minimum Distribution, our Social Security benefits, my annuities and a lump sum to bridge the gap until all income streams start, we should be set. Health insurance cost is one part that makes me a little uncomfortable but some of the discretionary spending can go if health insurance cost goes beyond what we have budgeted.

 

[PamMo]

Why, why is it so hard to get information from them ?

My question:

Can I retire at 62, draw benefits from my own SS account, then switch to drawing spousal benefits when my husband retires several years down the road ? Is there any penalty for doing this ?

Back to your original question, Gayle. Yes, you can do that, and yes, there is a penalty. You can start collecting social security before full retirement age, but as I'm sure you know, you'll get a discounted SS payment. You can switch to 1/2 your husband's SS benefit after he files for social security, BUT your deemed filing date will be when you started to withdraw your benefit at 62. Your SS payments will always be discounted. That's the penalty.

You should talk with your attorney/financial expert to see just how it would affect your retirement planning.

It was the ability to "file and suspend" that was eliminated by Congress.

These might be helpful: https://www.ssa.gov/planners/retire/applying6.html and https://www.ssa.gov/OACT/quickcalc/spouse.html#calculator

 

[Sugarcubesea]

Those that live in states with high property taxes can really feel the pinch when you are retired. Even if you downsize, you can still have a property tax bill that is going to gobble up your income.


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That's why I will be moving to a state that favors seniors

 

[WinniWoman]

Those that live in states with high property taxes can really feel the pinch when you are retired. Even if you downsize, you can still have a property tax bill that is going to gobble up your income.


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That scares me also. Property and school taxes here where we live in NY are right now for our home $9000 and go up yearly. And we want to live in NH- high property taxes also- and high real estate prices-not as bad as NY- but still.....again- might need to pitch a tent somewhere.

 

[Sugarcubesea]

That scares me also. Property and school taxes here where we live in NY are right now for our home $9000 and go up yearly. And we want to live in NH- high property taxes also- and high real estate prices-not as bad as NY- but still.....again- might need to pitch a tent somewhere.

Maybe we get get a double wide tent and share.

 

[VacationForever]

That scares me also. Property and school taxes here where we live in NY are right now for our home $9000 and go up yearly. And we want to live in NH- high property taxes also- and high real estate prices-not as bad as NY- but still.....again- might need to pitch a tent somewhere.

Eeek... my property tax here is only $2,400, about half a percent of appraised value of home.

 

[Sugarcubesea]

Eeek... my property tax here is only $2,400, about half a percent of appraised value of home.

I'm paying $6K in the summer and $2K for winter taxes for a 2,900 sq foot home in MI. more than I can afford in retirement

 

[vacationhopeful]

I hate to say, most of us ... me included ... live larger than we needed to now. I took over the family home with almost 4 acres plus a 5+bedroom home. I have had it up for sale for almost 6 months now ... no nibbles. Did have my realtor and her broker, try last week for me to agree to take it off the market for 6 months, let 2 other brokers in the office, subdivide 2 BIG lots of the homestead (they are willing to pay for all those expenses), and then, after all is said and done, the offer me a fair price for each lot .. as they want to build their dream home. The taxes during those 6 months is over $6000 plus insurance plus heat plus lawn care plus plus are ALL MINE .. I moved out of the house to stage it for sale ... not a storeroom for 6 MORE months.

Let me explain my experience in life ... no married realtor has the time to build their dream home .. much less 2 of them. They are too busy SELLING houses ... to build their dream home plus sell other peoples houses to pay for a new house all the while trying to stage & sell their home, pack up ... these are high producing agents ... I usually referred to RE agents ... top producers ... as very good CON (WO)MAN ...

PS This is also the exact same line of BS that my Texas sister got when she was out shopping the property for sale from my parents' estate .... 16 years ago. And those 2 real estate agents just wanted to build their families dream home.

 

[Luanne]

We reduced our property taxes by buying a smaller house in a different state.

 

[WinniWoman]

Eeek... my property tax here is only $2,400, about half a percent of appraised value of home.

Our house only has a market value per the tax assessor of like $254,00, but the assessed value is $170,000! In a better market here it would sell for at least something like $325,000+. In a strong market like in NYC metropolitan area or like in California it would be a a couple of million dollars with the land and all.

We paid $208,000 for it in 1987. It is 2500 square feet on 10.5 acres with a stream and a bridge that goes over it as part of the driveway. Set way back in the woods (700 foot paved ). Home is not assessed on all 10.5 acres as most of it is considered forestland and it is not buildable/subdividable currently. It has been updated for the most part as well. Sits on a slab- no basement. Big 2 car attached garage.

Majority of the taxes go to Medicaid, welfare mandates and other state mandates and the county levy, and then the highway and down from there.

Welcome to the welfare state of NY!

PS- Oh- and our homeowners insurance just increased to $1050 for the year- never any claims!

 

[VacationForever]

Our house only has a market value per the tax assessor of like $254,00, but the assessed value is $170,000! In a better market here it would sell for at least something like $325,000+. In a strong market like in NYC metropolitan area or like in California it would be a a couple of million dollars with the land and all.

We paid $208,000 for it in 1987. It is 2500 square feet on 10.5 acres with a stream and a bridge that goes over it as part of the driveway. Set way back in the woods (700 foot paved ). Home is not assessed on all 10.5 acres as most of it is considered forestland and it is not buildable/subdividable currently. It has been updated for the most part as well. Sits on a slab- no basement. Big 2 car attached garage.

Majority of the taxes go to Medicaid, welfare mandates and other state mandates and the county levy, and then the highway and down from there.

Welcome to the welfare state of NY!

PS- Oh- and out homeowners insurance just increased to $1050 for the year- never any claims!

Sounds like a great home. If only it is teleportable...

Unfortunately it is about location. My house that was just sold would sell for 3x what it sold for if it had even been 5 miles away.

Definitely low property tax and no state tax are important considerations for many retirees.

 

[breezez]

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.

 

[Conan]

When you have a good retirement income, and enough savings to produce income, you pay higher rates for Medicare, and additional taxes on your investment income, whether they are tax sheltered or not.

The income related Medicare additional premium on B and D premiums starts at $85,000 single/$170,000 joint MAGI (adjusted gross income plus tax exempt income) from two years earlier.
https://www.ssa.gov/pubs/EN-05-10536.pdf

The 9/10ths percent additional Medicare tax only applies to wages, compensation and self-employment income in excess of $125,000 single/$250,000 joint.
https://www.irs.gov/businesses/smal...s-and-answers-for-the-additional-medicare-tax

The 3.8% net investment income tax only applies to taxable investment income, and only to the extent MAGI exceeds $200,000 single/$250,000 joint.
https://www.irs.gov/uac/newsroom/net-investment-income-tax-faqs

 

[Conan]

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

"In the early 1990s, William Bengen read misguided claims in the popular press that average portfolio returns could guide the calculation of sustainable retirement withdrawal rates. If stocks average 7% after inflation, then plugging a 7% return into a spreadsheet suggests that retirees could withdraw 7% each year without ever dipping into their principal.

"Bengen recognized the naivety of this calculation, because it ignores the real-world volatility experienced around that 7% return, and he sought to determine what would have worked historically for hypothetical retirees at different points in the past. He used Ibbotson Associates data extending back to 1926 for U.S. financial markets. His research introduced the concept of sequence of returns risk to the financial planning profession."
https://www.forbes.com/sites/wadepf...arch-for-a-safe-withdrawal-rate/#28711d285a10

As I mentioned, there are lots of retirement income calculators.
http://bit.ly/2vhsrjZ
I used 4% in my example because that's Bengen's old benchmark.

 

[PamMo]

The 4% rule is actually a higher withdrawal rate than what some experts think is sustainable. Breezez, you may be making consistently great returns with options, but the average American will have many ups and downs in their investments. When we started saving for retirement as newlyweds, the average annual return over the history of the DOW was 9.5%. In the last 20 years, the DOW return (adjusted for inflation) has been 3.6%. I don't want to run out of money in retirement, so agree that a conservative approach to withdrawal is a wise course. It is always easier to adjust spending upwards than to cut spending if returns are lower than expected. The current bull market is quite unusual. We were absolutely brilliant investors during the tech boom, only to lose most of our savings in the bust. (But what a ride it was!)

 

[breezez]

Conan,

Thanks for the reply

 

[PigsDad]

If you are looking for retirement calculators, personally I think Fidelity has one of the better ones out there. You can plug in numbers individually for you and your spouse, different income streams, start / stop those income streams at different times, play with different investment mixes, etc.

Another good one is personalcapital.com. That is more of a consolidator site where you link in your existing bank, brokerage, retirement, etc. accounts, and it uses the live data to do its analysis. It has a couple of different options for specifying income streams, one-time major expenses in retirement (buying a second home, purchasing new cars every so often, etc.).

Using both of these calculators, I feel like I am on a very good track to retire in 7 years, when I am 58. House is already paid off, and we have been maxing out both 401k and Roth IRA contributions every year for both my spouse and I. We didn't buy a larger house than what we needed, and we drove our cars for 10+ years before replacing (and no BMW, Lexus, Audi, etc -- just basic vehicles). Those two things alone have really made a big difference in how much we were able to save -- especially in our earlier years -- which has given us a huge leg up on those who had to "keep up with the Jones'" and didn't get serious about saving until they were in their 40's or later.

The biggest variable in our plan is the 7-year gap between retirement and when we are eligible for Medicare. As we approach age 58, we can see if we need to work a bit longer if it looks like the medical insurance will be much more costly than we thought, but that would certainly not be the end of the world. And when I do my calculations, I always discount SS payments by at least 25%, because I personally think SS benefits will need to be cut in the future in order to keep the system afloat. I will never rely on the government for keeping me out of the poor house.

Kurt

 

[WalnutBaron]

I could have prepared more detailed examples. Of course social security is never fully taxable, and many retirees favor tax-exempt investments. If you want to use $20,000 or $40,000 for income tax and healthcare (Parts B, D and a supplement) feel free.

Which gives more support for the concept that one should look before leaping into early retirement.

This probably says more about me than I'd like, but I hope not to retire until I'm at least 70. Not only do I enjoy my work, but I feel like the daily challenges of managing my own business keep my brain exercised and sharp. Yes, the work does increase stress levels at times, but I'm willing to trade a a life of leisure too early for the chance to remain challenged intellectually and otherwise by continuing to work.

 

[VacationForever]

If you are looking for retirement calculators, personally I think Fidelity has one of the better ones out there. You can plug in numbers individually for you and your spouse, different income streams, start / stop those income streams at different times, play with different investment mixes.

Kurt

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.

 

[WinniWoman]

Our house has been paid off for many, many years, but living in NY with the high taxes we barely notice. Our property/school tax bill is as much as our mortgage was WITH the taxes included and rising every year!

 

[Sugarcubesea]

The income related Medicare additional premium on B and D premiums starts at $85,000 single/$170,000 joint MAGI (adjusted gross income plus tax exempt income) from two years earlier.
https://www.ssa.gov/pubs/EN-05-10536.pdf

The 9/10ths percent additional Medicare tax only applies to wages, compensation and self-employment income in excess of $125,000 single/$250,000 joint.
https://www.irs.gov/businesses/smal...s-and-answers-for-the-additional-medicare-tax

The 3.8% net investment income tax only applies to taxable investment income, and only to the extent MAGI exceeds $200,000 single/$250,000 joint.
https://www.irs.gov/uac/newsroom/net-investment-income-tax-faqs

Conan, this is great info, thank you so very much

 

[Sugarcubesea]

I hate to say, most of us ... me included ... live larger than we needed to now. I took over the family home with almost 4 acres plus a 5+bedroom home. I have had it up for sale for almost 6 months now ... no nibbles. Did have my realtor and her broker, try last week for me to agree to take it off the market for 6 months, let 2 other brokers in the office, subdivide 2 BIG lots of the homestead (they are willing to pay for all those expenses), and then, after all is said and done, the offer me a fair price for each lot .. as they want to build their dream home. The taxes during those 6 months is over $6000 plus insurance plus heat plus lawn care plus plus are ALL MINE .. I moved out of the house to stage it for sale ... not a storeroom for 6 MORE months.

Let me explain my experience in life ... no married realtor has the time to build their dream home .. much less 2 of them. They are too busy SELLING houses ... to build their dream home plus sell other peoples houses to pay for a new house all the while trying to stage & sell their home, pack up ... these are high producing agents ... I usually referred to RE agents ... top producers ... as very good CON (WO)MAN ...

PS This is also the exact same line of BS that my Texas sister got when she was out shopping the property for sale from my parents' estate .... 16 years ago. And those 2 real estate agents just wanted to build their families dream home.

I so agree, I really want to make these last 10 years count. I'm going to see a new financial planner on Friday and I look forward to seeing what he has to say.

 

[vacationhopeful]

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.

 

[VacationForever]

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.

Are realtors that difficult to find where this property is at? Usually they are out there by the dozens wanting a shot at selling anyone's property, and wanting to be exclusive for a period of time...