Thanks, SnootFool.
The biggest beneficiaries of this strategy are retirees with portfolios of between $200,000 and $600,000 … For these retirees, Social Security represents a larger share of retirement resources than wealthier retirees, so delaying could have a stronger impact on a portfolio’s longevity.
Ooooh, I would consider that range to be “barely able”. 4% annual withdrawal on $600,000 is only $24,000.
“tax torpedo.” This occurs when IRA withdrawals trigger the taxation of Social Security benefits.
Okay, I have a problem here. When your AGI + 1/2 of SS benefit is more than $44,000 then your SS is 85% taxed. $44,000 is far below what a middle-upper income would be. So financially successful people are going to be above that and the “tax torpedo” is here.
Playing with some numbers, Avg SS benefit is $19,884, max is $38,880 (at FRA). Max is $50,328 for filing at 70.
Assuming middle-upper (or would that be upper-middle) is getting halfway between the ave and the max, that’s $29,382.
Double that for a couple gets to $58,764.
Half that is $29,382. So other income more than $16,618 will push a couple into the 85% SS taxed. Upper-middle people most probably have much more other income than $16K.
What the article doesn’t make clear is what withdrawal rate would the Jacksons (delaying SSI couple) have to use in their 60s to bridge the gap. If they start with a $700K IRA, the initial $69K is about 10% per year, well above the 4% SWR rule of thumb.
Another thing the article doesn’t make clear is where the Jacksons got the money to live on in the years they deferred. Both got $69K of income. Smiths got $45K from IRA and $24K SS. Jacksons have to have gotten $69K from IRA.
If each started with $700K IRA at 62, Jacksons withdrew $192,000 more than Smiths did to 70.
At 70, (assuming 0% growth in the IRA) Smiths IRA balance is $340,000. Jacksons is $148,000.
Psychologically, I think most retirees would need a lot of explaining & handholding before they’d commit to a plan that involved giving their IRA a 10% haircut for eight years straight, even if the math was solid.
Jacksons IRA balance at 70 is 21% of what they started with. A 79% haircut.
So for someone getting the max SS check, you’d need about $800,000 in retirement savings to defer for the 8 years age 62 to 80, if you’re spending down the $400,000.
Very few people get the max SS check. A more realistic amount would be midway between average and max.
If you only have $200,000 in retirement savings, it still makes sense to spend half of that to delay for as long as you can,
NOBODY is going to voluntarily spend down half their IRA to defer SS. Nobody. Especially people that only have $200,000 to start with.
It’s still worth it to [take] an inflation-adjusted life annuity that you’re purchasing at half-price from the SS Administration.
Could you provide some real & realistic numbers instead of just handwaving?
Like, how much does this annuity pay you. Is that amount large enough to be worth bothering with?