June 24, 2013

The Checks have Started!



For me, the answer to "when should I start?" was last month. I turned 64 on May 10th, halfway between the earliest birthday at which I could claim benefits and my "full retirement" birthday. To see that first deposit appear in my checking account last week felt very good. Knowing that it will appear every month for the rest of my life was particularly comforting for my satisfying retirement.

The decision to start collecting Social Security when I did was not arrived at without a fair amount of thought and discussion. There are many who will argue I left two years worth of government money on the table by waiting this long. An even larger contingent will say I passed up extra money every month by not waiting until my 66th birthday. Still others will note, quite correctly, that if I waited until I was 70 my monthly check would be substantially higher.

Deciding when to start taking a Social Security check should be based on a combination of factors. In my case, I have been living off a savings and investment account since I retired in 2001. Most of the items in that account were tax free investments so that stream of income has been largely avoiding the tax man  for the past 12 years. I had planned for that account to last until May, 2013. In a case of good luck and an on-going adjusting as we went, the account reached a zero balance last month, right on schedule.

Since I started at 29, my IRA has been quietly bubbling along for the past 35 years. Not being a Roth account (not available until the amount in the account made a conversation too expensive), I will start paying deferred taxes on withdrawals. In order to keep the draw-down rate at under 4% (the target is 3%), a monthly Social Security check is required. By holding my income at a certain level I can avoid paying taxes on 85% of Social Security payments, though I will still pay taxes on 50% of those checks.

Waiting until I am 66 would have resulted in a larger check. But, my calculations are that the extra withdrawals from my IRA to make up that difference for two years would require 15 years of larger SS checks before I reach a break even point. To me that was too big a gamble. I do expect to be alive on my 81th birthday. But, how many years after that would I have to make that two year wait pay off? The final decision was to pull the trigger now.

The next big marker is Medicare, starting next May. I have been self-insured for 32 of the last 37 years. As anyone in a similar situation knows, the market for an individual policy has been an expensive and ultimately frustrating place to be. Over the years my rates and deductibles have increased steadily, while what is covered has gone the other way.

I have no doubt whatsoever that my insurance carrier would look for every way possible to deny coverage if I suddenly developed a major illness. The nearly $150,000 in premiums I have paid wouldn't matter at all. They would simply say "No" and wait for me to fight them or give up and pay everything out of pocket. That is how the system works and I am well aware of it. 

Regardless of its many flaws, the changes in our health care system will actually come too late to do me much good (or harm) since I am so close to Medicare. For Betty, several years my junior, we are hoping she will have more options than she has now. Her individual coverage stinks but with various pre-existing conditions she is stuck until the law makes that a non factor.

But, I don't want to think of medical insurance  and the mess it is in. I want to celebrate the fruits of my 35 years of paying into a system that now begins to pay me back at a time when it will come in handy. Will those monthly checks shrink over time as the deficit becomes too troublesome for even politicians to ignore forever? I don't know. So, again, I'll face whatever the system has in store for me when that time comes.

In the meantime, that number appearing in the checking account looks very nice!

39 comments:

  1. Congrats on making the "next" milestone in your satisfying retirement. Enjoy the fruits of your labor!

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    1. Thanks, Janette. Let's hope the "leaders" in Washington don't play too much with the money so many are counting on as the next several years unfold.

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  2. The bottom line is that you made a well thought out decision, Bob, based upon what was best for you and Betty's situation. It may not be the best for someone else, who make start earlier or later than you are, but it was measured nonetheless. That is why there is no one set plan for starting SS payments - we are often unique in our finances. Enjoy the payments and continue living life as you see fit.

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    1. When I was designing my retirement plan I purposely avoiding counting Social Security as part of it. That means the monthly check is a bonus, one that we don't have to have to live, but one that will make life sweeter.

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  3. Congrats on having those checks start. I think you really made a well thought out decision. Since Bob and I were both public servants neither of us are eligible for social security. Not complaining though we have a decent pension. (although the state of Illinois is trying to take that away since the politicians did not pay their share for years but that is a whole other story. But as you said, we will deal with that when it happens.) We will however be eligible for Medicare. Any good resources that you are aware of to educate ourselves on that? We are 62 and 63 so time to start reading up! Thanks Bob. Cindy

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    1. Things have been changing so much in the health care world over the last few years any resources i am aware of are somewhat suspect. I have found the government's Medicare booklet is excellent and very helpful in understanding some of your choices and the timing of decisions. It is re-issued every year with the latest updates.

      But, since you are a few years away I'm pretty sure by the time you and hubby reach 65 there will be new wrinkles. One of the biggest changes will likely be in the supplemental coverage area: the medgap policies and so-called advantage plans. Those companies will be directly affected by the full implementation of Obamacare next year.

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  4. Congratulations, Bob. My husband elected to take his SS at 62. Everyone has to look at their unique situation. The only thing I would add is for people (primarily men) to also look at what the spouse will get after he/she is gone. It's a factor than many don't consider.

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    1. Since Betty only worked part time her SS payments would be quite small. She will be able to claim half my amount as the spousal benefit when she turns 65, and then get it all when I pass. She claims she is in no rush!

      BTW, were you threatened at all by the big wildfires in the Prescott area?

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    2. No, it was on the other side of town. My husband does search and rescue so he got pull a couple of 12 hour days helping. He was obviously happy to do it.

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  5. It's nice that we have options. I jumped in at 62. Life is often short and I would not die a happy woman if the government got my money!
    b

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    1. I will never second guess my decision but it did take several back-and-forths to decide 64 was right for me. A you note, life is too short.

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  6. Bob, Thank you for including a discussion of the effect of taxes on your financial planning! The way Social Security benefits are taxed is confusing, but good planning can make a big difference in the amount of money available to you to spend.

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    1. Yes, I had to read the various regulations a few times to insure I wouldn't cross the line from 50% to 85% by mistake.

      There is also the issue of part time work and its effect on SS payments. Past a certain income ($15,120 in 2013) you lose $1 in benefits for every $2 you earn until you reach your full retirement age. Then, in a stunning bit of "only the government could invent this," you get that withheld money BACK in increased payments.

      What the point is of taking it away only to give it back aludes me, but that is the law!

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  7. How exciting to get your first check! I can see we're going to have to read a little more about SS. I thought if my husband took his at 64, then I would wait until I was 64 & start drawing half of his. I don't understand why Betty would wait until 65. Also, I knew the payment would increase some if I'm left a widow, but didn't know it would increase to equal my spouse's full amount. Interesting!

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    1. Actually, I made a mistake: she'd have to wait until her full retirement age (66) to get the full spousal benefit. If she starts before then, she would only get what is in her account, which is about 80% lower than mine or a permanently reduced spousal payout. So.....she will wait!

      From the SS web site: "Between age 62 and your full retirement age, the amount of the spousal benefit will be permanently reduced by a percentage based on the number of months up to your full retirement age. At your full retirement age you are entitled to half your husband's amount or your own, whichever is greater."


      BTW, Glenda, I will have a post on inheritance next week based on your e-mail to me awhile back.

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  8. Bob - Congratulations to you on this latest milestone! Tamara and I have had some preliminary discussions with our financial planners about when each of us could/should take our SS payouts. Based on your post and the comments from your followers, there are obviously many factors to consider. We only factored in a 50% of our total SS payment into our long term financial plan when we retired as I really don't know what will change in that program or when it will change but, as you indicate, there will eventually have to be some type of change. Thanks for sharing your thoughts and perspective that led to your decision and continue enjoying your retirement! Mike

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    1. First of all, a belated happy birthday! And, thank your wife for deciding to continue her blog, albeit in a different direction.

      Yes, Social Security has a lot of different factors to consider. But, it is nothing compared to Medicare! The rigid enrollment and change periods, the need to decide on whether to use Part D from Medicare or from a private company, the need for coverage above and beyond what Medicare covers, the yearly deductible, the increased cost of Part B each year.....it is enough to make an old head spin. We'll wade through it together!

      I'm looking forward to meeting you in August in Portland. Thanks, Mike, for your input.

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  9. Bob,

    I am surprised that you did not start tapping your IRA once you reached 59 1/2 and delay the draw down of your after tax reserves. I retired at 56. I had a good mixture of after tax and pretax accounts (IRA, 401K) accounts. At 59 1/2 I started tapping into the pretax accounts. The amount I would draw from that account would be the difference between my taxable income (interest, capital gains, dividends, etc) from after tax accounts and the amount at which I would either start incurring federal and state income taxes or at most keep the tax bracket in the lowest category.

    By doing that I will maintain more in my after tax accounts and keep greater flexibility in tax management once I start drawing social security.

    Rick

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    1. I thought giving the IRA another 5 years to build tax free would be best. But, your approach may have made more sense at the time.

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  10. Congrats, Bob! I'm still under 62 and retired but chose to not base my retirement on SS, either. However, I plan to tap in as soon as I can. Not going to spend half of what is left of my life waiting it out to collect the highest age 70 payout and yet another number of years waiting to recoup lost dollars from an age 62 payout. You can't take it with ya.

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    1. No, you can't take it with you! As long as SS is not one of the pillars of your retirement, taking it at 62, even with 25-30% lifetime reduction in monthly checks, is a choice many make. That extra money can sure look good when it comes time to pay for vacations, unexpected expenses, or simply to build a nicer life.

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  11. Steve in Los AngelesTue Jun 25, 12:14:00 AM MST

    Congratulations, Bob. Although I am in my late 50's, I am giving greater thought to Social Security and Medicare. Nonetheless, I still plan to wait until age 70 to begin Social Security. I definitely will begin Medicare at age 65 (so that my health insurance costs decline tremendously). Some people may think that I am crazy to wait until age 70 (less than 13 years from now) to begin Social Security, but unless my health changes (which is unlikely), I am delaying my commencement of Social Security. Also, I will be doing conversions of my traditional IRA to my Roth IRA each calendar year between age 61 and age 69. Delaying Social Security until age 70 will keep the income tax bill down. By the way, on Sunday, I was among many thousands of people who participated in "cycLAvia" in Los Angeles. I walked 10.3 miles in approximately three hours. Longevity is in my genes. I had many relatives, on both my Mom's and Dad's sides of the family, who lived into their mid- to late-90's. I am convinced that I very well could break the century mark.

    Steve

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    1. Your planning is an excellent example of how each of us must analyze our own situation and decide what is best for us. Your approach takes a lot of self discipline.

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  12. Currently my plan is for hubby to try and take half my SS till full retirement(66yrs for him)or wait(he is not crazy about my idea)till he is 66yrs to tap his own SS.Me I am a definite 66 and 6mos or possibly 70yrs sine I intend to work.We have good pensions from the hospital we both work at.RDC made me think about tapping IRA/403b or any other sources of pre tax if we need income source prior to adding SS to our income streams.Of course the rules are a moving target and we are only 58 so time will tell.We will try to make the best decision at the time.And we are well aware of health care costs as I work for health insurance and then we both work for a hospital which is where we get health insurance coverage from under my husband.That is four sure always changing to benefit the insurance company NOT the patient!

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    1. It is a moving target and one without a clear finish line so rather constant adjustments are important. You have one nice piece of the puzzle that I never had: a pension.

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  13. Congratulations Bob, you timed the market well. I hope you enjoy your windfall!

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    1. Windfall? The checks are good-sized but not quite in the windfall category, I'm afraid. Still, the 2nd Wednesday of every month is my new "most important date."

      Thanks, Gail.

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    2. I guess I should have put "mad money" instead?

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    3. Mad money or "walking around money" works! Whatever we call it I am happy to see it appear every month.

      I'll share a little inside info: I put down the wrong bank account number so the first check had to be returned to the government while I fixed my dumb mistake. Luckily, I met with a very nice agent at the SS office and within a week the check was correctly deposited in my account.

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  14. I'm 64 and planning to wait a few more years. But, oh man, you guys make it sound awfully tempting!

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    1. You are a pretty strong guy, Tom. I know you can resist our siren call.

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  15. Hi Bob: This subject came up at my annual tax review. He told me taking it at 66 will reap the most benefit if going by average life span. Taking it at 70 will give you more a month, but less overall unless you live considerably longer than average. He ended with: "But if you need it at 62 then take it." I have a few years of planning to see if I can delay a bit from the 62 mark. 64 sounds like the perfect compromise!

    On another note, I wanted to thank you for allowing us without blog accounts to post comments. When I first started reading blogs I had no idea what they were, or intention of replying to any. Now that I've see how interesting and informative they are, it's a different story. I know anon. posts irritate you (as you've mentioned!), but I really appreciate that you still allow them. Eventually I'll learn how the whole thing works, but it's not tops on my retiree bucket list.

    And I'm also really happy Tamara is continuing her blog - you two are my favorites!
    thanks, Rose

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    1. Actually, since you added your name, Rose, you are not anonymous! But, if you'd like Rose listed at the top, next time you leave a comment one of the choices under "Replay as" is Name/URL. Just type Rose after "name" and leave "URL" blank. That's all there is to it.

      I'm glad your advisor didn't give a "one answer fits all" response regarding Social Security. It really depends on so many factors.

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  16. Cari in North TexasThu Jul 04, 02:35:00 PM MST

    Congratulations on reaching a milestone, Bob. It's interesting to read all the comments as well and how different people are/will handle the SS payout situation. I'm on the fence at this point, but I have a few years to think on it. I have a pretty decent financial planner, and he and I are starting to have conversations about this very subject. I never included the SS amount in my retirement planning, wasn't sure if it would even be there, so it will most likely be my travel/play money. Can you say RV payment? LOL

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    1. The next check should hit my account next Wednesday...but who is counting? !!!

      An RV payment...go for it.

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  17. Bob

    Your posts were very helpful to me; I am now leaning towards retirement at 66 yrs. Will I have to have actually celebrated my 66th birthday (in October) or can retirement be in/at the beginning of my 66th year in order to still collect full Social Security?
    Thank you, Suz

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    1. You can apply up to three months before your 66th birth month, but payments won't actually start until one month after your birth month. The exact day your payment is deposited in your checking account depends on your birth date. For example, my birthday is May 10th. That means my SS check is deposited on the 2nd Wednesday of each month. My first check was deposited in June.

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  18. Good Morning, Bob

    There's one other question I forgot to include in yesterday's posting. Can I still collect full Social Security if I retire from my job two to three months before my 66th birthday?

    Thanks, Suz

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    1. Yes you can. I wasn't working for almost 12 years when I started collecting. As long as you have enough credits for years worked you will get Social Security whether you are employed or not.

      You can also work after you get Social Security but things get a little more complicated: earn too much and you begin to lose money each month. But, when you turn 70 the money you lost is given back to you in the form of larger payments.

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