That is the easy, textbook recommendation. Max out SS, and the government makes you take the RMDs out. So for anyone, that would be the best case scenario to have the most money. Duhhh! Kitces/Pfau in various articles/books often comment that if you use a 50-60% stock, rest bonds mix, the majority of the time you would end up with double or triple your original savings using the 4% "rule." Seems to me each person needs to determine how long they can or want to work. Some people want to keep working, nothing else they want to do. Some people want to enjoy some "Go Go Years" when they are physically able. Decide what you and your significant other want to do, make an accurate budget of fixed/floor expenses. Determine how much you can withdraw annually from your savings. Then determine what SS level you can accept. Have a cash bucket for emergencies and travel. If you have low savings and need high SS, then you may have to keep working. If you calculate you can pull out enough, plus SS at age 65 to cover your budget, go enjoy your life. Father Time is undefeated, and we all will have a narrow window to enjoy time without having to go to work.
I read the report and now I understand where some are getting the idea that they should either work until 70 or spend investments to delay taking social security. Since it is 80 pages long I basically skimmed the last half.
The report says the strategy was designed for those who have not accrued significant benefits in defined benefit pension plans, who have accumulated meaningful balances in defined contribution plans, and who might not work with financial planners.
It assumes that 67-80% of the retirees income will come from social security. Retirees with pensions are not included in this study. It assumes two sources of income: social security and MRDs.
I thought their asset allocation discussion was interesting. They were recommending a 100% stock allocation. But they accepted 50% for the faint of heart but thought 75% was a better compromise.
Again for those without pensions, they said the delaying strategy produces higher average retirement incomes but lower expected average accessible wealth since a portion of savings is rapidly used up to fund the social security bridge payments. Earlier in the report they said one of the disadvantages was reduced liquidity.
By the way, I agree completely with the report in that we should try to cover basic living expenses with guaranteed sources of income and cover discretionary living expenses with income generate by investment assets -- if possible. They discussed single payment fixed annuities to help make this happen.
I'm glad I read the report. I now understand why it isn't as relevant for us as it could be for others. I have a pension. I retired at 60 when our house was paid off. We have no debt at all. Two years later at 56 my wife retired when I started taking social security payments. We both kept teaching part-time until last year when she started taking social security payments at 62. Those three incomes cover 114% of our basic living expenses, not 67-80%.
Pensions make a world of difference. For those of us with pensions there is no reason to continuing working in a dissatisfying job just to maximize social security. Everyone's situation is different. For us, taking social security at 62 was the better solution.
Thanks for posting the link.
A lot of individual (and family) factors may come into play. In our case our daughter decided to return to college for an MBA -- a very expensive one. I was still employed while she was building a prodigious debt mainly from federal direct loans at a usurious ca. 6.6% interest rate. To reduce that burden, while also covering some of her personal expenses (housing) I filed for SS at age 66. But I didn't retire until age 70.
In retrospect I should have found a way to hold off on the SS, but virtually 100% of our investments/savings were within tax-deferred accounts (to which 15% of my income was being contributed, by me and my employer) and I did not want to take any cash from there until I had to (RMD's). As it turned out, our daughter only put a dent in that outstanding loan debt and was unlikely to get over the hump in the first few years of employment post MBA.
Now several years later, it's been working out for her, in part because when I did retire and began taking RMD's we also ran into an unexpected amount of cash from inheritance. The first receipts from the inheritance went toward liquidating the remaining federal direct loans. Our daughter was free of debt, had found a very good job, and we could move on to our retirement without any big money issues. But it would be nice to have a larger monthly SS check.
Many who read this forum will intuitively grasp the findings and analysis and I nonetheless appreciated learning about the study. One might pay an advisor a fair amount for similar insights.
I think that for those who don’t pay attention to their finances or haven’t thought much about what do in their 60’s (fully retire, work part-time, draw down savings) it will be quite useful to have had someone sketch out scenarios for those in different income and savings ranges.
I got MRDs(?) when did my 72(t) at age 54 1/2. So the medium AFR was the basis for those then but I went out on 80% of the default maximum withdrawal rate. So some of your SEPPs are then assumed to be MRDs required by 72(T) and the rest are from the projected AARRs at the rate you use to calculate the distributions. This resulted in a distribution of nearly 5.75% against the 3.23% AARR. The difference calculated against your actuarial life expectancy expected negative amortizations and your expectation for your portfolio to earn at least the 3.23% avg yield. The length of the 72(t) period was a wash as the two parameters meshed and I continued my SEPPS right through the end of the 6th year of distributions. But having saved quite a bit from the excess distributions I was able to end all distributions for a few months and then start them back up again at 4%. As soon as my ASAP SS kicked in with my 2 years younger near wash wife and her own benefit not dependent on mine, I reduced back to 3% withdrawals. Three years ago I started Roth conversions and gifting in kind from my R/O IRA. So each year those provide more tax free income to pay the taxes on the subsequent Roth conversions.
So we hit the four main islands of Hawai'i and took a near week at Whistler before I even got to my SS ASAP age 62 &1/12th. Now my wife is basically an invalid and can not even walk 2 blocks. So we had a great time in the "early" retirement from a job where I was quite seriously, lucky enough to escape from with my life while I was still alive.
So last year we went back up to 4% distributions and this year we went to 5%. So I am already 3 1/2 years ahead of the next period of MRDs that for now start out at about 4%. In the end should I live past age 76 the MRDs may become a bit pernicious. But now there are some possibilities that the required age to take MRDs will be extended to the detriment of those who get inherited IRAs being reduced to ten year MRDs. But that is why we do annual gifting of tax advantaged dividend paying shares so that some inherited money will escape MRDs and even the 5 year medicaid look backs.
By the time I get to 85 if I make it, I will be out of luck for some of the total gross distributions I could have gotten if I had waited longer to collect SS. Or is that an imagined loss, just some lump sum life insurance payments? With COLAs my SS benefit has returned to the original amount after the deduction of my medicare premiums started. I am already getting "MORE". We will be getting more as of 1/1/20 too.
Just what I saved in tax penalties for those 6 years with the 72(t) plan will likely offset some of the pernicious MRD rates that start after age 75. But by then I would likely be up to a 13% R/O IRA withdrawal rate anyway plus annual gifting.
If Trump gets re-elected the window to do ROTH conversions and save significant tax costs will likely widen, if he is defeated then we would probably still have this and two more tax years before the taxes go back up. Once more than half my IRA assets are in the ROTH it will be all down hill on the remaining R/O amounts. By then maybe another 15% to 20% will be with my beneficiaries. AS long as you keep making those gifts annually it is possible to get some income from them as well. Your benefactors can gift you up to $15 K annually and still keep $7500 for themselves after taxes on a $600K tax advantaged dividend paying portfolio. Or $1200 annually with $600 annually for themselves after taxes, on a $40K similar portfolio. When you die your beneficiary does not have to inquire with your lawyer as to what happens to such pre-inheritance acct balances. So not even the tax breaks on dividend income in a cash account is guaranteed to survive the next and eventual other out years tax reforms.
We must also calculate in that once the MRDs become pernicious, a lot of that after tax distributed money that you do not pay in taxes and consume for living expenses will provide a basis for income productions from your cash acct.
Postponing SS is a valid strategy as long as the tax laws do not change much. But you are hearing nearly every week that the IMAGINARY SS and Medicare trust funds are running out of money. But just as these trust funds are in fact just accounting place holders and not actually existing there is no such thing as a debt ceiling, as each time it is hit the Congress has to decide wether or not to pay the US' financial obligations and for the money they already spent. So calculating more is likely biased by ever more pernicious means testing of your retirement income and SS becoming 100% taxable. Janis Joplin died but not before driving it home that "You gotta get it , while you can".
7 years after I retired and the subject of SS came up, a friend of mine advised I could get a lot more if I waited to collect and that I could still work as long as I did not exceed the income limits for SS recipients. He then recalled that I had been retired for nearly 10 years. What kind of job do you get when your resume has a 7 year gap? I guess you could claim you had been in jail for wife beating?
It is possibly not that important how much a 22 year old puts into their Roth or 401-K but extremely important that they put in at least a something. On the the other end, scheming to maximize your after tax results in retirement planning may not be as important as just doing something in the way of Roth conversions, gifting, and even building income in your cash account(s). Somethings that will at least ameliorate the eventual MRDs that will come anyway to the portions of your IRAs that are not in the Roth accounts.
As some already stated, it is not a simple one-fit-all solution (e.g., claim SS at 70). One needs to carefully assess trade-offs and come up with the optimum strategy tailored for one's particular financial, health, and working situations (e.g., with non-working spouse), There are tons of calculators designed for such a purpose.
We did that with our parents and we did it with our own retirement funds. Delayed SS as long as possible and live on your own taxable savings as long as possible before retirement in addition to at least part time work. This may be a more flexible and realistic plan for most.
Anyway my parents savings with no IRA’s and SS lasted from 1982-2017. But as others have mentioned there’s a great deal of variance and chance with each individual involved. For example two long bull markets during that time. Our Depression era parents had much safer retirement portfolios then us composed of munis, Aristocrats, utilities, CD’s and cash designed not to lose money.
So I don’t know if you can ever draw any concrete conclusions from articles, methods, studies or opinions based on the past concerning the unknown future. They’ll keep trying though rarely acknowledging constant change instead of hindsight and a static situation. I think common sense dictates invest as safely as you want and spend as wisely as you believe because unknown expenses may arise same as always.