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Title: Take Social Security Early, Pay Less Tax & Have $500k MORE?
Introduction
When it comes to planning for retirement, one of the most significant decisions individuals face is when to begin receiving Social Security benefits. Many people assume that delaying these benefits until the full retirement age or even later will result in higher payouts. However, recent theories propose a different strategy – taking Social Security early, paying less tax, and potentially accumulating $500k more in the long run. Let’s explore this alternative approach to Social Security planning.
Understanding Full Retirement Age
Before diving into the strategy, let’s clarify the concept of ‘Full Retirement Age’ (FRA). FRA refers to the age at which individuals can claim 100% of their Social Security benefits. The FRA varies depending on the year of birth, typically ranging between 66 and 67 years. For instance, if you were born between 1943 and 1954, your FRA is 66 years.
Traditional Approach: Delaying Benefits
The conventional wisdom suggests that delaying Social Security benefits beyond the FRA can result in increased payouts. For each year you postpone claiming, your benefits can grow by approximately 8%. Postponing until age 70, for example, can result in a significant payout increase of up to 32%. Consequently, this approach aims to maximize long-term benefits, especially for those who anticipate a longer life expectancy.
Alternative Approach: Taking Benefits Early
Contrary to popular belief, recent studies have proposed an alternative retirement strategy that advocates for taking Social Security benefits early. The main argument revolves around the opportunity to invest during the earlier years while receiving reduced benefits. By taking benefits at age 62, the earliest eligibility age, one can start investing their monthly payments, potentially accumulating substantial savings over time.
Tax Considerations
Besides the investment opportunity, early claimants can also take advantage of the tax benefits tied to lower income levels during the initial years of retirement. By relying on Social Security as the primary income source until other pensions, part-time jobs, or investment accounts kick in, individuals can often stay within lower tax brackets. This can result in significant tax savings and more money available for investment throughout retirement.
The Potential for $500k More
To assess the impact of this alternative approach, some studies have calculated the potential accumulative savings for early claimants. Researchers simulate different scenarios considering individuals’ average lifespan, investment returns, tax implications, and economic factors. The results indicate that taking Social Security benefits early, while investing the monthly payments and benefiting from lower tax burdens, can accumulate up to $500k more in savings over the course of retirement.
The Importance of Personal Factors
While the prospect of an extra $500k can be enticing, it is essential to consider individual circumstances, health conditions, and financial goals before adopting this strategy. Life expectancy and external factors, such as pension availability or current saving levels, should be evaluated to determine if early claim and investment align with long-term retirement plans. Expert advice from financial planners can help individuals make informed decisions based on their unique situations.
Conclusion
With changing perceptions and alternative retirement strategies emerging, it is crucial to reevaluate our assumptions when it comes to Social Security planning. While delaying benefits remains a viable option for many, one cannot disregard the potential benefits of taking Social Security early, investing monthly payments wisely, and leveraging lower taxes. By carefully considering personal circumstances and seeking professional advice, individuals can make informed choices that maximize their retirement savings and overall financial well-being.
I personally think DC is the best SS channel on YT! That being said, every single person or couple is DIFFERENT!!!! STOP
Irma calc
you talk too fast and one minute your voice is low, next minute too loud…. think of your audience…man! who follows you????
Please remove your hat when you are inside.
Please remove your hat.
Had a hard time following this. You seemed to sum it up with: "The bigger your expected portfolio return, the sooner you should take SS". But you didn't say why. Was it because –following the title– it is more tax efficient to do so?
Please remove your hat when you are inside.
Josh correct if I'm wrong. The biggest reason 62 looked like the best age was:
1) The couple only wanted to take $7000 per month. Devin actually says this in the video. I'm not sure why but I could sure spend more, fix up house, another vacation or 2, etc.. If they would spend more it would increase the taxes paid, decreasing the the money left over but still an excellent chance of successful retirement. but close the gap significantly if not reverse the gap in taxes paid.
2) They did not want to minimize the taxes to their heirs. This does not make sense to me unless they wanted to give the money to a non-profit charity which would not be taxed. If it was family or friends they are leaving the money to, why not minimize taxes so they can keep as much as they can. Change either of these 2 assumptions/goals and it would probably be beneficial to delay social security as you have outlined and may have also performed some Roth conversions.
3) If the wife's social security was half or more than her husband, I would think it would be beneficial for both delay till 70 and again do some sort of Roth conversions.
So, if I were the financial planner I would talk to them to see if they had really thought out their assumptions/goals because they do not make much sense to me unless they wanted to give as much money to a charity as possible.
You always seem to explain things clearly Josh. But this is one of the first videos of yours I had trouble following. May this old farmer is just getting too old! Anyway, thanks for what you do. Your videos have helped me get ready for retirement and I thank you for that.
Hey..:). i totally LOVE the cow painting there! ….(θ‿θ)
wouldn't the wife's SS be $1,500 (1/2 of husbands when she reaches FRA)
I need advice. We have 5 rental properties that have about $475,000 in mortgages and our family home with $470,000.00 mortgage. The condos we have were bought with 10,10 and 15 year loans and have 3, 4 and 10 years left on the loans and we have a townhouse and a single family home that have 30 year fixed with about 28 years each left. Interest rates on 3 condos is 5.25%. SFH is 3.75% Townhouse is 3.5%
We have about 950,000.00 in our TSP(government 401K) and I have moved 50% of it to safety in the G fund. I am thinking to pull much of it out to pay off many if not all of the mortgages.
We are over 60 so have access to all our funds without penalty. We will have to pay about 22% to 24% Federal and 5% State income tax on what we take out, however we will have to pay tax whenever we take it out.
We are retiring next year, selling our home in DC and moving to the country in Virginia so we will walk away with about $200,000 cash. We will be buying another home and use that to pay for it, at least a very big part of it.
I was fine keeping it in the TSP C Fund( tracks the S&P 500) for the past 20 years and it grew nicely. I am a little worried about the Market and the whole economy.
The stress of watching all the "experts" tell me completely different scenarios every day regarding the future of the market is wearing on me.
I want to sleep easy and we have enough to do this. I usually have a high risk tolerance and this has served me well but going into retirement I want to preserve our wealth.
I would be very appreciative of any advice. Am I missing anything? We will have a pension, Social Scurity and rental income when we retire. We will continue our small online store that nets about $2000 per month in retirement, so we will be in strong shape and will not need anything out of our TSP for living on. We will keep investing and build it back up but be secure in knowing we are completely debt free. and it is not like we are losing any money( other than the tax hit but that will happen someday anyway)
Why not have Doris take at 62? Also should you talk about what happens when one spouse dies first?
These financial forecasting tools should include a tab to input your health variables and family history. Basically the same info health/life insurance companies use to determine your probable lifespan, premiums or whether they even offer coverage to you at all. That feature if properly designed could provide a more meaningful risk profile of running out of money at age X -not only from your predicted expiration date, but also by estimating your probable healthcare costs leading up to your expiration date.
By all the sceneros you ran, all of them had their success rate below 50%. My question is; what if my wife is 7 years older at 69 and she is now collecting her full SS and I am 63 I believe I should take mine now because she has already reached her full SS? We also have 15K of monthly pensions and annuity income coming in, plus over 1M in IRA investments. Don't see the point of waiting any longer??????
A reason to draw early is to maintain your asset base. If you die you generally can't leave your social security benefits to your kids. You can pass on your investment.
I love your biden "come on man". LOL
That's a great idea to run your own scenario. I'm not sure I followed, though. In order to get a true apples-to-apples comparison, shouldn't you have used the same rates of return for each comparison? I would have liked to see that, maybe I just misunderstood.
I adore you. . .
I retired last November due to medical issues. After going over various scenarios with my financial advisor (Dustin at Jazz Wealth), I decided to take SS this year at age 63. My wife began her SS at FRA last year. According to Right Capital I will have more money at 90, if I live that long, than if I waited later to take SS. And we are only pulling out a third of the funds we need from our retirement account per month, which allows our retirement funds to recover from last year.
Keven FRA do $3k, wife, FRA of $1200, wouldn’t hers be larger, if 1/2 of his filing? And, if she took 1/2 of his @FRA, then would he be required to file, for her to get hers? Meaning he might not be able to wait to age 70 for filing?
I kept looking @the small circles that charted the (I think), safety chances of successfully not running out of money, and I think it showed stronger chance of success, for the proposed waiting longer to file…
Standard deviation is a measure of variability, so when something uncommon happens like the bond returns last year your standard deviations go up to reflect that the range of possible returns is now greater than before.
Not many suggest that a low earner should delay past FRA especially those with their own benefits. I would also look at whether depleting the after-tax before drawing from IRA is optimized for taxes. If you are delaying till 67 you certainly want to fill the standard deduction and probably the first tax bracket with IRA withdraws and then maybe the rest with after-tax money.
Curious. Would the outcome be the same for a single person?
So much depends on the deviation that know one actually knows until after the fact.