Social Security
I am full retirement age (66). If I defer social security until age 70, my benefit will increase about $10K a year. I will be facing fairly high RMDs at age 70.5. My wife and I still work, and we both receive pensions from previous employment. Does it make sense for me to take my social security benefit now since the increased benefit from waiting will exacerbate an already difficult tax burden? Any input would be appreciated.
Thank you,
Mario
Permalink Submitted by Alan - IRA critic on Tue, 2015-09-15 17:08
If you start SS benefits now while you are still working, it is likely that 85% of your SS benefit will be added to your taxable income. You would be better off to stick with your age 70 target date for SS benefits as the extra 10k will be a life annuity with a COLA and will also increase your wife’s survivor benefit if you pass first. If you were willing to pay taxes on SS benefits now, you might benefit more by converting TIRA assets to a Roth IRA if you have them or contributing to a Roth option at work if it is offered. That will reduce your RMDs from what they would have been unless you have not been contributing to a retirement plan at all. The primary determinant of doing a Roth conversion or making Roth contributions is whether your expected tax rate in retirement will be about the same or higher than what you are paying now. If you think it will be lower because you are working now and will continue to work to age 70, then use pre tax contributions to lower your current taxes. There is no easy solution to retirement taxes if you accumulate substantial assets that generate RMDs. Your tax rate may be high, but what you receive after taxes is what counts, ie the amount you keep. In your situation, your strategy should be attempting to keep your tax rates about even every year. If you end up with a low income or high deduction year, then convert in that year because conversions will reduce your RMDs permanently. But I would not back off on your SS plan because of the COLA, the lifetime annuity benefit, and because 15% of your checks will be tax free.
Permalink Submitted by Mario Paparozzi on Tue, 2015-09-15 21:35
As I mentioned, I am full retirement age. Is it wise to apply and suspend social security and then have my 62 year old spouse apply for spousal benefits. based on what I am reading and being told by social security, it looks like this type of move would reduce benefits for my wife later. Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2015-09-16 04:01
Yes, starting her spousal benefit at 62 will result in a permanent reduction of her benefit as long as YOU live whether she continues a spousal benefit or shifts to her own benefit later if that is higher. If she survives you, then she will get your current higher SS benefit.
Permalink Submitted by Mario Paparozzi on Wed, 2015-09-16 20:11
Thank you very, very much.
Permalink Submitted by [email protected] on Wed, 2015-09-16 13:25
If she files at 62 she will be filing for her own benefit, which would be reduced due to filing early. IF her spousal benefit would be more than her own, they will increase her benefit to cover the difference (also reduced for filing early). The only time you can file restricted for just spousal is when you file at FRA.
Permalink Submitted by Mario Paparozzi on Wed, 2015-09-16 20:11
I truly appreciate your reply.
Permalink Submitted by Douglas Bauerband on Thu, 2015-09-17 23:36
if you are facing high RMD’s, look into possible creating a lead trust to beneift charities while you are alive but will benefit your heirs upon passsing. tax deduction, tax credit. This was just a thought.