Should You Draw Down Your Portfolio to Delay Social Security?
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- Опубликовано: 7 авг 2024
- When people talk about social security benefits and retirement planning, they often say, “My goal is to wait as long as possible deferring social security because it increases my benefit.”
Your social security strategy should be based upon a comprehensive retirement plan and things like your investment strategy, income strategy, legacy goals, tax strategy should be considered before you actually design your Social Security strategy.
In today's video, James Conole is going to show you when it makes sense to draw down your 401k balance in order to increase your social security benefit and what’s the best retirement investment strategy for you.
Learn the tips & strategies to get the most out of life with your money.
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2:00 - Retirement Planning
3:20 - 401(k) Investing
4:50 - Retirement Plan
5:60 - Retirement Portfolio
6:45 - Social Security Strategies
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One thing not discussed as a point in favor of waiting on SS is the possibility of reducing RMDs at 72 by withdrawing from 401ks and doing Roth conversions in the decade prior. Allows better tax control as you move into your older years
I was hoping James would’ve touched on this as well. Drawing down my 401k was something I was planning on to reduce the impact of RMDs.
I have small pension, 2 IRA's, and a ROTH. My plan is use my pension and smaller IRA to live on. Delay Social Security to minimize taxes while doing ROTH conversions from my larger IRA.
I have a small pension... and a indexed annuity.... using that to delay S/S
agree with drawing from 401k to do conversions and hence delay ss.
Depends on the size of your 401K. If those future RMDs approximate what you will need to withdraw anyway - or at least are approximately close, it isn't really an issue. Alternatively, if you expect your RMD's to be far greater than your spending needs, you should consider doing 401K to Roth IRA conversions earlier on - to fill out your current tax bracket.
I think there are two main reasons for taking SS early; you need the money or your life expectancy is unfavorable. I think there are many advantages for waiting. - This won’t apply to everyone.
- Ability to perform Roth conversions during low income years
- Reduced RMD (stay in lower tax brackets, IRMAA reduction, reduced survivor spouse tax risk)
- Favorable tax treatment on SS income
- Increased spousal survival benefit
- Reduces longevity risk
These are all great points
Bilo-Your comment absolutely nails crucial considerations omitted from this video!
Every one of your points about waiting are why I am. Goes to prove the point there is much more to consider than breakeven or rate of return, whether from retirement assets or “from” Social Security. James did allude to those points of consideration towards the end of the video.
The reasons you state are why I’m waiting to age 70, as long as I have no major financial changes. Although if someone is in poor health, is married and currently financially stable - they should not collect before their full retirement age. This gives the surviving spouse the largest benefit.
This is exactly my situation, I just retired at 64 and 4 months, with just under 1M in my retirement account, we sold our condo, (I did not want to pay on a mortgage) going into retirement. We purchased a new high quality manufactured home for cash, no taxes to pay, only lot rent. We can now live very comfortably on $5000 per month, I plan on drawing my SS at 65 and one month, which will be $2736 a month, this does not include the 8.7% COLA just announced. Now I will only be pulling around $2260 a month from my retirement account. That the plan, we hope it works out :)
That lot rent can be very scary and skyrocket without your control. An alternative might be to purchase your own parcel of land and place it there, much more like a single family home without neighbors right on top of you.
The best thing I like about waiting until the age of seventy to collect Social Security is the peace of mind about what guaranteed income I will leave my wife should I not get to live as long as expected. Thanks, James, for all the great work you do to educate!
hopefully, u live long enough to collect SS
True,👍 that's the only reason that I'm thinking about. Another option is to invest it when I take it early.
You are a good man to be concerned about your wife ... i was disappointed it was not even mentioned in the video ...
I understand your concern. Unfortunately SS is not guaranteed and may decrease by as much as 22% in 11-12 years. You may be doing your wife a bigger favor by implementing SS payments earlier and preserving other investments.
To know my wife will be taken care of with GUARANTEED income if i pass away first is what allows me to sleep at night ...
Another consideration is that SS is taxed more efficiently. The larger percentage of your income derived from SS and with tax diversity in your other accounts you can really minimize taxes in retirement
I am retiring in a month at 64 and one month. I plan on drawing on one of my two 401K's to bridge me to my FRA at 67 with a current projected benefit of $3,600. Everyone has their own situation but this one works for me
I can't understand why you don't think most people don't take this into account about taking social security early. The numbers overwhelmingly show the people take it early I believe only 6% of people wait till 70.
Many of us who wait to 70 are well aware that we're spending down our 401k and not letting it grow. And that is on purpose because of rmds and we want to take advantage of low tax years.
I was going to wait until 70 to retire. Then I had a bad dream where my wife and I died the night before age 70 and the government got to keep $150,000. Thus, I started drawing Social Security at 66.
Glad it was helpful!
Well, I started on the take social security at 62 and saving as much of my 401k as possible, until later. My thought was to take the money I can't control and keep as much of what I can, as possible. Now, that I understand RMDs, Roth conversions, and IRMAA a little better, I'm beginning to question the wisdom I was so certain of.
RMDs can increase taxes particularly if you have dividend income. Spend the 401k down. SS is an inflation adjusted anuity.
This is a great video! Thank you.
My wife is 9 years younger than me. Waiting at least a couple years past 62 will just benefit her when I'm eventually gone
@James Conole is spot on with the optimization issue. Remember: "money doesn't grow on fees".
Great Video!
I hate it when they use 62 and 70 as the age. Both are bad at least in my situation. Around 65 to 67 would the safest and best in my opinion.
Loved this video. I have this same discussion with family and friends often. You articulated this very well. Most financial advisors never account for the loss you sustain from drawing off your investments and they tend to recommend waiting as long as possible to take SS. For fun… I put together an extremely rudimentary excel sheet based on collecting at 63 when I retire vs waiting to full retirement age. The SS breakeven is as you stated approx 80 years old. But If I added into the calculation the money I drew down from my investments and the loss of growth on those dollars at a straight 4% average rate of return. I found I can never breakeven. So….I will be collecting SS at 63 when I retire.
Nice explanation on this one. 👍👍
I think a major consideration if married is what the goal is for the surviving spouse. When one passes the survivor gets the bigger check. So delaying the larger check makes sense for the survivor. Well that's my two cents.
Excellent points that you clearly explain. I'm watching all of your Social Security videos.
Awesome, thank you for watching!
Excellent perspective! Thanks!
You’re welcome!
Part of my strategy is to delay (70) in order to have more money available to support potential for long term care that will minimize any impact on kids - thus "break even" is a secondary concern for me
Glad it was helpful!
You are awesome. Thank you.
thanks , this was an excellent review for anyone to look at and analyze . Great Work
You're welcome!
Another great and helpful video - you do fantastic job of distilling complex financial issues into easily understandable guidance. I only wish you would provide fee only investment advising instead of managed money, or am I in error re what you provide?. Thanks again for tremendously informative, articulate, and concise videos!
What about taxes, RMD, IRRMA ect?
Very good video.
I haven’t heard the whole video yet, but that once did you bring up taxes and that’s the main reason I want to drive from my 401(k) while I’m in the lowest tax bracket! Unless you have a Roth 401(k), there’s a ton of taxes to pay specially when you have state tax on top of federal
I think you should have used more realistic numbers in your example - I.E. $1750 @ 62, $3100 @ 70 assuming $2500 @ FRA 67. This is basically a 77% increase in benefits versus the 50% in your example. Also delaying a year you gave the same value versus the 8% increase in monthly benefits. If you had used more correct numbers it would have looked less beneficial to claim social security early.
Great slant on this. Most say to wait.
Thanks Craig
The thing I did not hear factored in is the COLA increases in SS. So, if you delay your SS, not only do you get more SS, you end up with higher COLA adjustments. I am planning a mixed approach where I just delay SS for one year. So, most of my 401K will still be untouched.
I retired and started collecting SS at 63 to allow our investments to grow. My spouse is 6 years older and has some health concerns. Knowing that when he passes I’ll be eligible for his larger check the break even point didn’t seem to apply as much to the decision. We’re also wanting to leave as much legacy to the kids as possible!
I absolutely have considered letting the 401k grow and drawing at 62. It helps that my age 62 SS# is better than the average, but it's still a tough call. It's an extra $1k/month if I wait to 67. I've been thinking 64/5 more and more might be the best. And have wife wait to 67 so she can maximize her 50% draw off mine.
Forget about break even at what age. You have to think about the surviving spouse benefit.Waiting longer is better if youre married.
If you and your spouse have about the same social security benefit, does spousal benefit still come into play when making decisions?
@@nutria12247 I believe it's "survivor benefit" ("spousal benefit" is when both are alive and one person's benefit would be negligible so that takes a benefit based on the other person's; "survivor benefit" is when one person passes away and the survivor keeps collecting just one benefit, whichever one is higher). To me, it seems like if either spouse expects to live beyond age 80-ish (whatever the "break even point" is), one spouse should delay until age 70 (the one with a slightly higher benefit) to maximize the surviving spouse's benefit. When the other spouse should start gets trickier to me, because "spousal benefit" becomes a non-issue, so there's just the "break even point" to look at, plus how much you want/need the money and/or fear major changes in the social security system.
I think that most of us have also put aside some taxable assets which could be used to live on when the market is down but you want to reduce the size of your tax differed assets so that when RMD time comes, you won't be hit as hard. It's a good time to do some ROTH conversions too. That is if you're trying to put off SS until age 70. Hopefully this is not going to be a long down market!
Great info. And when you die before that social security breakeven amount happens (many many people will pass before that ) the government keeps all that $$ that YOU could have been utilizing.(It does NOT get passed to your heirs like your brokerage and deferred) another consideration
I am currently retired with a local government pension and withdrawals from my IRA for additional funds. I am planning on taking my Social Security at my FRA and stopping my IRA withdrawals . I currently live in Virginia which does not tax Social Security.
I have to say this video brings up some very good points. The guaranteed income from SS is also very suspect no matter what professional financial advisers and the so-called experts tell me. I don’t think that SS will look the way it does today in 10 years time given the social, demographic, and economic convulsions this country is experiencing and which are likely to continue. Unfortunately, these same factors are also likely to affect tax advantaged investments, but at least with those one will have more control. This all presents a pretty compelling argument for taking SS as soon as possible, hope that you live past the break even point, and tomorrow be damned because all we really have is today. Great video!
Historically changes in Social Security don't affect people close enough to make changes. Fixing Social Security is not a mathematical problem it's a political problem. I am almost 100% confident most of us will see no change of Social Security that are old enough to make decisions about it.
@@johngill2853 - Exactly! Political indeed. Unfortunately, I do not share your confidence.
yes - there will be a reduction in benefits, & most likely means testing....
Still good advice
This biggest expense I would have to get rid of before retirement is my mortgage. After that, I really don't have any debt other than my credit card in which that debt should be gone by then. This is when I'll be able to retire. What I'm reading from most of you is you had a really good chance to eliminate that debt while you were working at one place for 30-35 years. Trying doing that and having to go through multiple layoffs and having to start basically over again. When you have one job for 35-40 years, if you started there at 21, at 60 you should be able to retire because all your major expenses/debts should be relatively paid off. You can't do that having to move several times in your career and I don't care how much you plan, trying to save an emergency fund, save for retirement, etc just not possible with the salary you start off with in your career but salaries starting off nowadays are 50-70% higher than 35 years ago.
I opted to wait until I was 70 (my husband, the lower earner, took his at 62). I stopped working at 67 and used cash from the sale of real estate (invested in laddered T-bills) to pay for our expenses until I turned 70 so I could leave my 401K of $360K (rolled over into an IRA) and $300K in stock untouched. Our expenses as full-time travelers run around $10K a month but this will decrease to $6K a month when we can no longer want to or can sustain a nomadic life. I am happy I waited-my net after medicare is $4400 a month. I feel “secure” that I can live on that alone if I should need to. Though, projecting death at 90 suggests SS plus 401K withdrawals will offer a comfortable life for the remainder of my days on earth.
Ty
Glad it was helpful!
Draw 401k down to a tax bracket break point like for instance 12%. Pay taxes, then put what you don't use into a brokerage account and let it grow there. Dividends and capital gains are taxed lower if at all up to a break point. Know where that is also in planning. By lowering the 401k you lower RMD's in the future with the possibility of that 401k growing too big and those RMD's putting you into the next higher tax bracket and potentially also into a IRMAA. Social security then grows and is not taken till 70 protecting your spouse. Social security is not in your tax return giving you the space in your tax bracket to get that 401k money out. That brokerage account has a stepped up basis when you die fir your beneficiaries. Your 401k and taxable traditional IRA's do not and your heirs have to deal with taxes and their own RMD schedule to draw it down. Best to use those funds first
I am planning to delay SS and my small pension until age 70, not necessarily to maximized raw income potential, but rather to maximize income security/longevity later in life. Even thought I expect my investment portfolio to remain pretty strong throughout retirement, knowing those larger guaranteed SS and pension benefits are there will provide peace of mind, even in the event of a prolonged market crash later in life. Any decision that reduces personal financial stress or concern is a wise decision.
Break even at 62 is not 81 0r 82.It is 75 or 76 with colas.67 is 78 and 6 months.70 is between 80 and 81.colas are larger at 70 so this brings it down to 80 0r 81.
Lots of different ways to look at things. 401k money is taxed at 100% and right now those rates are pretty low. After 2025 who knows what the tax rate will be. Social Security gives you a premium so to speak bc only a max of 85% is subject to taxes, depending on your provisional income.
Great explanation, thanks. Question--If a portfolio grows 8% it's not really a "true rate of return" if the increases are not reinvested or cashed out, correct? (i.e. if the fund is untouched and goes back down 8%)
If I take SS at 62, I’ll get $2,500 per month or 30k per year.
I have 1mm in a retirement fund with an average annual return over the last 20 years of 8%.
I plan to draw 3% of that at 62, which equates to another 30k per year.
So a total of 60k per year, I have zero debt.
Based on my average return, I will still net a 5% annual increase.
I’m still ahead and can retire with enough annual income to do the things I want.
Finally a guy who talks real stuff. Many other so called experts babbled on about ROI and look look at all that money in the end. They are so narrowly focused in one direction and missed the big picture. The money in your investment accounts go to your heirs after you kick the bucket, not the SS money. Uncle Sam wins 😢
This justifies having a bucket strategy.
Well said, Bruce.
I was planning on 67? Now maybe 65-67. I'm only 60 so I will stay flexible hope to bd retired before 62.
Thank you for pointing this out. I have been preparing for retirement for years and have felt this way towards drawing social security at 62. Nobody seems to think this way. Also, it allows me to leave more to my heirs. They can not turn to social security and say they want to receive back pay for the money I did not draw upon if I waited. To me it seems a no brainer but I am sure many will say it is a bad decision.
It depends on each persons situation, but there are benefits to collecting early that many people don’t think about
Or collect it and invest in I-Bonds?
@christine d - I understand you wanting to leave money to heirs but some of us prefer to wait on ss in order to convert our 401k to roth to hopefully pay lower taxes in the future or have lower income to stay under the IRMAA thresholds. Also, you could make more in the 401k those extra years but then you could lose more also. And I hate the thought of navigating 20 to 30 years (if I am blessed to live that much longer) in hopes that the 401k does not run out. So I would want some of that 401k money in an annuity. But also, in your situation, you could wait on ss and be converting some of that 401k to a roth gradually and then you would still be able to leave the roth to your heirs and then have a larger ss check for as long as you live..
I truly hope it works out for you ... good luck ...
i am going to be delaying ... my main goal is to as best I can, guarantee i and my wife (if i pass first) always have enough ... the GUARANTEE that comes with the social security allows me to sleep at night ... and its fat more than just the additional 5-8% per year in the GUARANTEE ... it's the COLA as well ... if i and or my wife are fortunate enough to live to 90 plus the COLA dollars really add up, and since my plan has me able to live off my pension and social security alone with at least some comfort this is the path I am choosing ...
It's worth it to draw down a tax deferred IRA if one has a Roth and does conversions before taking SS. Why push SS into the taxable range?
I have the perfect plan. Say I retire at 60 with a total of 3 million….2 million in Roth 100% growth mutual funds. 1 million in pretax cash, money market. I will spend 100,000 per year till 70. At 70 after spending down cash, I will then take Social Security. Roth money should double by then or at least be at 3 million. Will then have only SS and Roth at 70. Future taxes are eliminated, no RMDs, no tax on SS, no future IRMAA, any money left to Beneficiaries to inherit at that point will be Roth which will grow tax free for another 10 years (secure act rule). As you can see for the first 10 years of retirement I’m pinpointing all my growth in Roth account tax free, spending down pretax cash which insulates me from a down market in first 10 years.
It’s a puzzle, you just have to know where and when to put the pieces together
Retiring at 60 with $3 million would put you in a nice position no matter what you decided to do about collecting social security! Lol.
If you have 3 million, when you take social security is an afterthought.
You pay federal taxes on social security regardless of age.
No you don’t! Not if you have all Roth and Social security. Do some research you will see. Pretax and capital gains will make your SS taxable
For those who want to leave nothing in 401(k), all in Roth & social security, consider what happens if healthcare expenses the last year+ of life are astronomical (as they will be for many people because of "personal care," people hired at home or a nursing home to help with basic mobility and daily activities, neither of which is covered by Medicare): those costs are tax-deductible. So from a tax perspective, having high "income" from 401(k) on top of social security won't result in a huge tax bill. So 401(k) is a bucket I'm not emptying totally, just mostly.
So if we do draw down the portfolio to delay social security, what's a safe withdrawal rate? Shouldn't it be more than 4%, if post-social-security it'll be less than it otherwise would've been? I guess we should calculate, at age 70, how much money we need to supplement social security at a 4% withdrawal rate (vs 3% if we want to be ultra-conservative, which may not be warranted); then we know how much we can draw down the portfolio between now and then and can run that amount through online calculators (with different scenarios of stock market performance and withdrawal amounts).
I’ll be 65 in Jan 25 and plan on retiring then. I’ll draw on my Simple IRA to live on until age 70. My strategy includes dramatically reducing my cost of living by relocating to the Philippines. The reason for waiting to 70 is because if I should have to return to this country for health or other reasons I’ll have $4600(current estimate) inflation adjusted to live on for the rest of my life plus the remainder assets I’ll have in a 401k. I will keep my current house and rent it. That will lock in the cost of housing for when/if I need to return. For good or bad that’s my plan. Shoot some holes in it if you see them.
IF you're 62 ish and can qualify for state medicaid by not having more than 16K or so in reportable income, you might be better off delaying SSA until 65 when medicare kicks in and using medicaid as your medical plan. You'd have to live off cash/roth or sales of assets so your MAGI isn't over 16K or so. But you wouldn't need to be enrolled in ACA and paying premiums and deductables for that coverage through age 64/5..
This scenario doesn't consider a spouse who might not be interested in looking at investments, or how much someone might have in their 401K when making this decision. I ran the scenario of taking at 62, and waiting until 70. When I apply 3% COLA and 4% return on my 401K, There is more cash in my 401K over the rest of my life that can be inherited by my wife or children, but if I die before my wife she will lose the lower SS benefit and 1/2 my pension. I still need to do the math on that scenario to ensure she has the best chance at not having to move in with the kids.
I am delaying SS till 67 and delaying taking income from IRA and 401 K till 67. . I plan on living off of cash until 67. Will be poor on paper and use Obama care to keep healthcare premiums low or almost zero. Sale of house will fu d the cash reserves. Being debt free helps. Is this a good plan.
Glad it was helpful!
Good plan, remember have to start Medicare at 65.
Best video I have seen on this topic.
It is gone, we lived through the zenith of our time.
These bourgeoisie individuals in tandem with the corrupt govt. will take down this country like what happened to Rome. My condolences to anyone approaching retirement, you may have concerns over whether your pension pot will stretch to cover the rising cost of living, bad regulatory policies, bad energy policies and insane fiscal policies
I like simple guidelines. Assuming you are not wealthy to begin with, the following make sense to me. 1) Don't take early retirement unless you have health issues and can't work anymore. Social Security penalizes you and reduces your monthly payment if you start collecting before your full retirement age. 2) Social Security will pay you 8% more for every year you delay taking Social Security after your full retirement age (up to age 70). Depending upon your full retirement age, 66 or 67, you could get 24% to 32% more each month. 3) Work to 70 if you can to max out your benefit. During those final work years, pay off as much debt as possible and take advantage of your company's 401k program. A full time job will almost always pay you more that Social Security will alone and you will probably be retired a lot longer than you think. You don't want to run out of money during retirement.
You need a white board to show illustrations for those of us who are visual learners. Also, why all the hype a about 401K? Not everyone has that investment. What about annunity, Roth and Roth IRA investments only?
He mentioned that when he says 401K he means IRAs, 403bs, etc. Principle involved applies to any kind of investment vehicle.
This is exactly why I plan on filing for social security in January at 64.5. I'm single so no worries about spouse considerations.
Glad it was helpful!
No, claim at 62. Draw your 401 K later ,and allow it to grow and be part of your estate for surviving heirs.
I claimed at 62,no regrets,
Unless someone has a portfolio of at least $1 million - or there abouts - the bridging strategy starts to become the better option IF your SS benefits come fairly close to the maximum that is paid out by SS. If your situation is one where your savings is less than $200,000 or so, you may want to bridge with that to delay until 70. The idea of the "break even point" is not a strategy. If you file early, how does getting $2,000 per month in SS benefits help if you have $200,000 in savings or investments to supplement that with? Because you will totally deplete that before too many years and then only have the $2,000 SS benefit to live off of when that happens.
And you can't pass on your SSI $.
After much work and consideration on tax consequences on social security. My wife's and my situation, we decided that I would take social security at 70 and she will take it at 65. She also has a good pension coming from her work. Our tax es on $90,000 a year will be a little below 3%. Everything must be considered in your decision as to what you do. What works for me will probably not work for you!
Thanks for sharing!
I don't know and have never heard of anyone waiting to 70 to take SS. That's just not realistic for 95% of Americans.
3-5%, I’m planning on 69-70, my wife took early, will spend down portfolio a little.
The truth of the matter that for most people there really is no advantage in waiting. The reason you get more per month by waiting until full retirement age, or even waiting until age 70 is because you will get fewer payments. I retired at age 62 and began taking back my Social Security at the time. For most people the break even point is around 80 years old. (79 years 8 months for me. I first looked at my family history. My dad died when he was 80. He did have a brother who lived until 87, but he also had a brother and a sister who died in thier 60's. My older brother died when he was 70 and my son died when he was 41. Life is uncertain and living a long life is guaranteed to no one. The single most important thing you need to know is that more per month does not equal more total. 7 plus years retired now and I have zero regrets about taking the money early.
If your 401k does not grow from age 62 to age 70 the country has a lot bigger problems. Probably be down to hand to hand combat if it was that bad for 8 years in a row. 🤔
Uh, no. Not in most cases. You can't bequeath SS payments to adult children.
Your Hiers don't get your SS if you die.
For those choosing to draw social security early: We can pause (stop) our social security checks at anytime from age 67 to 70, and then get a higher check, when our social security checks resume at age 70. The increase is 8% per year, plus inflation (annual COLA). Thus, assuming inflation is 2.25%, then our annual increase is 10.25% (8% + 2.25%). At age 70, our check will be 34% higher (1 * 1.1025 * 1.1025 * 1.1025 = 1.34). If stocks are surging higher, this can be a good option. If stocks crash, then this option is not so great (as we may be selling stock at a low price).
For those with Roth IRA balances: the above is not such a good option if we need to withdraw from our Roth, because of delaying social security to age 70. The reason is because our Roth funds are valuable (tax free), while social security income is mostly taxable. This situation applies to me, thus, I'll be drawing social security as soon as possible.