Should You Draw Your 401(k) to Delay Social Security?
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- Опубліковано 9 лют 2025
- This video discusses the question: should you draw on your 401(k) to delay Social Security? The video examines delaying Social Security under several different COLA and 401k return scenarios and then overlays life expectancy to ensure a holistic analysis. Most importantly, the video quantifies what happens when there is a change in the Cost of Living Adjustment or the 401k return.
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Disclaimer: this video is for educational and entertainment purposes only and is not meant to be a substitute for legal, accounting, tax, or professional advice. If you have any specific questions about any legal, accounting, tax or other professional service matter you should consult the appropriate professional services provider.
The big thing you missed in this video is the fact that taxes on Social Security should be illegal in the first place. Double taxation is illegal and that is exactly what is happening. SS recipients have already paid taxes on the wages when they were working and now when retirees desperately need this income the most to live the government gives them the shaft! Retirement may become a problem for Americans
More and more people might face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire.
I completely agree; I am in my mid 40s, approaching retirement, and have approximately over 2million dollars in external retirement funds. I am debt free and have very little money in retirement funds compared to the total value of my portfolio over the past three years. To be honest, the Fin-advisor can only be neglected, not rejected. Just do your due diligence to identify a fiduciary one.
@@viviancarolgioao This is exactly how i wish to get my finances coordinated ahead of retirement. Can you recommend the financial advisor you used to get ahead?
I've stuck with SHARON ANN MENY since the pandemic, and her performance has been consistently impressive. She’s quite known in her field with over two decades of experience, simply look her up.
Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.
I retired last year at 66 and 2 months. I started my SS at that time, I am able to live on this and do not need to withdraw from my savings, 401, Roth and investments. If I had waited until I was 70, it would take me 15 years with the increased benefits to equal what I will have received until that time. Furthermore, I don't have to withdraw from savings to live on until I reach 70. That leaves those to grow in value, which increases my net worth and more inheritance for my family when I pass. I had some health issues in 2020, a Total Knee Replacement and Prostate Cancer. As of now everything is good, Cancer is gone and the knee is working fine, so I am going to enjoy life now.
I hope you have been enjoying life and spending some of your money in the past 10-15 years. Most heirs squander the money they inherit on useless stuff and partying because they did not work hard and save for the inheritance. They just inherited the money so most(not all) just blow the money.
@@paengguin9381 I am planning some projects and trips. My daughter is my only benefactor, she and her husband are very smart with their money. But I will enjoy myself until then.
@@thomasaccuntius9946 Great. Have a blast!
Smart man
I like your life philosophy. Enjoy life now. Congratulations on beating cancer.
I'm 55 and my wife is 58 this last year I just started delving into all the complicated things about social security. What do I get from this video is that there are some factors we just cannot predict and we have to pick a way of doing things that simply informed and then go with it otherwise will just be totally stressed. I cut everything back on my bills and still all I can save is 800 a month into an IRA and 401k I had no idea there was so much to think about for retirement
I am 73. I used Option A, with a modification. The funds I drew out of my IRA during the years age 62 to 70 I didn't spend, but by conversion, put into my Roth IRA. So, all the market growth over the past 10 years in my Roth has been tax FREE. This is important, because once I hit age 70 and began collecting Soc Sec, I did not want my bigger Soc Sec benefits to be pushed into a higher tax bracket due to Required Minimum Distributions that began for me at age 70 1/2
I take it that you also had a monthly employee retirement payout to use for monthly bills?
@@jaypaladin-havesmartswilll5508 that's the exact same thing I was wondering
I'm doing the same thing as well. I'm delaying collecting SS till I'm 70 since SS has COLA and I get guarantee additional 24% after I reached FRA. I'm hoping to convert as much as I can to ROTH IRA before RMD.
This is very close to what I want to do. I’m 55, but at 65 I retire and my six year younger wife works three or four years more while I do conversions, and then we both retire.
But this assumes you had other funds in hand to take care of expenses from 62-70.
So, the bottom line is it doesn't matter that much? It seems the biggest problem you might end up with, assuming you're lucky enough to be able to make this choice, is being 90 years old, complaining about not being able to drag an extra $100K into the grave with you. My thought has always been take the money you can't control (SS) and don't spend the money you can control (the 401K) until you have to, even if you run the risk of coming out a little behind. It's a first world problem, we should be glad to have.
To me SS I can control, it only goes up the longer I wait, my investments are constantly going up and down. I have lived long enough to see my money go south for a good bit of time.
Yes I agree with your point about the money you can't control (SS). Even though SS probably will not completely go away, it is a high likelihood that they will cut back the amount by delaying your FRA, so by delaying you keep chasing a moving goal post ...
Im waiting until 70 to collect my SS. i have no debt and currently living off a small defined pension and passive dividends. Im letting my traditional IRA grow tax free until 73 when my required minimum distribution kicks in. Thank you for the valuable content.
Age 65 and still working. Earn too much now to take SS so keep on doing what I do. I watch as much as I can and apply to my situation as needed. This one hit close but with the 401 earning close to 21% and the Roth sitting close to 24% I am letting them ride.
Looking forward to retirement but as they say ‘pay first - enjoy second’
Keep ‘em coming Schmidt!❤
This is the best channel I have found so far. Not just opinions but a spreadsheet to show the data. The assumptions it's based on are really up to you to provide and it can give you a solid choice to start from.
For me I'm already retired from my job but I'm only 51 so deciding on when to take benefits is a long way off but it's never too early to start planning!
Great video Geoff. The difference between A and B is about $35 a month, not enough to make that big of a difference. Do what's right for you. I'm tapping out in 3 years at 60.5 and taking SS at 62.
Choosing a Roth IRA is advantageous as it uses after-tax funds and allows tax-free growth. When I retired, I had $3M million saved, and I won't be taxed on my withdrawals.
I converted my 401k to a Roth IRA to avoid higher taxes in the future. I'd rather pay taxes now than be stuck paying taxes on my retirement income when I'm 59 and living off my savings.
Pre-tax contributions may help reduce income taxes in your pre-retirement years while after-tax contributions may help reduce your income tax burden during retirement.
Both have their perks but you can also save for retirement outside of a retirement plan, such as an individual investment account or employing the services of a retirement planner/financial Advisor.
Very true, people downplay advisors role, until burnt by their mistakes. I remember just after my layoff early 2020 amidst covid outbreak, I needed to stay afloat, hence researched for license advisors. Thankfully, I came across someone of practical knowledge, and decades of experience, my stagnant reserve of $325K has yielded nearly $1m after subsequent investments so far.
Exactly, a good number of people discredit the effectiveness of financial advisor, but over the past 7years, I’ve had a financial advisor consistently restructure and diversify my portfolio and I’ve made over $3 million in gains… might not be a lot but i'm financially secure and that's fine by me.
Geoff,
You are truly one of the best in your field… you have a phenomenal amount of patience, and your demeanor is at the highest level of professionalism I so much appreciate that. Thank you for all the hard work you do bringing this information to people all over the world.🇺🇸💜🙏✝️⭐️😇👍🌎
Another really fine video. But for many, maybe the majority, the question is immediately more complex if there is a spouse involved. Now it's two decisions and a far more complicated analysis is required. Keep up the great work.
Retired at 62 and 2 months. I took SS and a pension. I work part time and saved most of my money, putting some in a Roth IRA. I was able to live off SS and pension until I ran out of HSA and use money from my part time job to pay insurance. At 67 I will start to withdraw some money from my retirement accounts.
4:24 time mark _ "... and understanding what happens when the variables change is far more important than whether we come up with Choice A or Choice B."
While it is important to understand the dynamic nature of the number crunching, I'd say that viewers have already taken the most important step. Namely, they have started planning their retirement (or at least started thinking about their retirement needs). It's good to know that there are sources of information readily available online to assist them in their planning. It's good to take a pro-active stance on their future retirement.
If one spouse is the much higher wage earner and especially if that wage earner is older than their spouse, that SS is not just an annuity on their life, it is on both their lives. This is a major consideration on the high wage earner to delay SS to age 70.
We plan to take SS at 62. Retired at 60 with a good amount IRA As Geoff’s video on taking SS At 62.
Tax wise, I'm a fan of option A as you're using your 401k funds under taxable limits and partially de-fusing the "tax torpedo" and "widow's tax trap" while getting the guaranteed 8%/year social security increase and let's not forget that social security income is only partially taxed at most. Many other factors such as longevity, the solvency of social security (and medicare) as well as market returns and interest rates...these are crazy days we're living in and it's likely to get a lot worse before it gets better. Perhaps the middle ground of full retirement age is the answer for most.
Not to worry: We can always print more money if money becomes scarce. In seriousness, I think option A is going to change at some point. I weep for the future...
@@Mechulus Don't worry, I'm sure they WILL print more money. One thing is for sure, the future isn't going to get "better". I've got no tears to shed as I have no past and I have no future, other than what I make. Besides, these days we're spending less and saving more than ever and all I see are more ways to save.
I don't know if Geoff has made any new videos as SS & medicare pOtEnTiAl ChAnGeS are discussed by the powers that be? How can folks plan/guess/choose? I am tempted to start early SPECIFICALLY because from my life/work experiences those older commitments are often 'Grandfathered in' while changes are imposed (aka lessened) on the younger.
@@daleboris-kane313 It's pretty easy to make broad predictions based upon past changes, current circumstances and likely future trends. For instance likely Roth IRAs will never be changed as the only reason they exist is because the government needs more revenue immediately...I don't believe anyone could ever think this is going to change.
Likely taxes will be higher in the future given both the overspending, the devaluation of the currency and the government's inability to address any of these problems even on a superficial level. The solutions to "fix" both social security and medicare are obvious but no politician is willing to do the unpopular things that are necessary so most likely the only changes will be to up the age of early filers from 62 to 65 and a slight raising of the income tax cap on higher earners but not nearly enough. Best to bank on a 25% shortfall of promised benefits just to be safe, save and invest like mad to more than make up for it.
A forward looking tax plan to offset these likely changes is key, including Roth IRA conversions at lower tax rates and then raising cost basis' in taxable accounts. Only you can decide when to take social security based on a number of factors and you may very well be right about filing early and being grandfathered in with changes but you're giving up on a lot of additional money over waiting until your FRA if not longer. What's nice is that keeping yourself informed and being flexible allows you to make the best decision for you based upon more current information as you near your retirement age. Cheers!
@@tomj528good thoughts but you can save every dime you have from here till you die, and the fiscal idiocy of Congress can undo it all. 3 million pesos won’t buy much. Americans don’t hold congress responsible for the ridiculous waste of tax payer money as a matter of fact 98% of Americans believe the president spends all the money. I hate to be negative Nancy, but I don’t see Americans wanting to learn how the country is supposed to work and who is responsible for the atrocious spending. The 16th and 17th amendments really screwed things up.
I plan to retire from my job at 62 and take my social security then. I’ll supplement that income with my managed retirement investment to enjoy life with my wife and young grandchildren. I want to create unforgettable memories with them while I’m still physically active and my mind still sharp. Time is too precious to waste when there are people in your life you love. So I’ll cover my daily living expenses with my SS and dip into my retirement account for family trips, gifts and life adventures yet to explore.
Well said.
Both my grandmothers lived to 98, I'm planning on that too.🎉
Wow. I can't remember seeing a seven minute video that packed more useful information in it than this one. (Many instructional videos don't ever _start_ to get to meat of the discussion until _after_ seven minutes, or more, of pointless ramblings have gone on!)
Thanks for taking the time to put this together. Thanks for taking the time to put your many other videos together too.
I like the idea of delaying SS for as long as I can. The yearly increases, about 8% each year, are guaranteed.
(Your percentage increase from receiving benefits at 62 vs receiving them at 67 is exactly 42.86%. This is the same percentage for everyone regardless of the actual benefit amount. And waiting until age 70, if you can do so, is a 24% increase from your age 67 benefit.)
These percentages are high enough to be worth considering. (And yes, of course there's also the SS adjustments from COLA.)
My 401K has not done very well at all the past three or four years. That growth, while it might be potentially more, can also be much less, given a few consecutive bad years.
I plan on living to be 90+. I never smoked, never drank, was never overweight.. and both of my grandparents made it that far. And my mom is also still alive, whom I resemble and take after. (She is 84.) Hopefully I inherited some of these longevity genes.
I also like the idea of receiving a fat monthly SS check for many, many years!
currently retired and I'm still years away from SS but will be drawing on savings/401k to delay SS until 69 (this is the best break even point for me). Leaving a legacy to heirs is not part of my plan and i will be spending down my 401k like crazy between 60 and 70 (go-go years). After that, SS /pension and whatever is left in my 401k should cover my twilight years as studies show people spend much less money past 70. I want to die bouncing my last check.
Live to zero. I like it. I have no heirs so planning on doing something similar plus do some Roth conversions but collect SS at FRA vs 65.
Once again a great analysis Mr. Schmidt, but one important consideration is money left in your estate. Upon death social security payments immediately end. However money left in a 401k becomes a part of your estate. Living off of social security and preserving funds in your 401k increases the chance your heirs will get more money regardless of ROI.
Oops, said the same thing, good point.
You need to consider the other possibility that you live to a very old age. If you take social security early and spend down all your assets you run the risk of becoming a financial burden to your heirs instead of leaving them an inheritance. If you’re married your spouse will receive a larger survivor’s benefit if you wait.
@@jameswitte5676 if you're planning on giving an inheritance you just don't spend it lavishly. Or better yet give the inheritance early so nobody else can take it away.
They can burn in hell! :-) It is good discussion point. Not sure he addressed it in any of his videos?
@@jameswitte5676 why live for your heirs? It's your money, use it. Now if you have to go into assisted living or long term care, paying those bills is a completely different story. I know most people would not want to pay those bills and have no money for their heirs because of it, but that's an entirely different discussion :)
I did a similar analysis looking at SS at 67 vs 70. 70 comes out ahead, but just barely. The value of taking SS at 67 and enjoying my retirement earlier far outweighs waiting. Thank you. You confirmed my plan.
beware of the ancient well known logical fallacy known as confirmation bias. just because he told you what you want to hear does not mean, by itself that it is the right course. what are you going to do to confirm?
Thanks for this breakdown. One factor you may be missing is what you leave behind when you die. If you take SS early and leave as much in the 401k as possible, that will go to your beneficiary when you die, whereas if you draw from that and take SS later, there's no real benefit to your survivors. Or am I missing something?
A spouse or disabled child (who can be an adult) can get increased survivor benefits for the rest of their life based on the final social security income, so the survivor benefits can indeed be an important factor to consider. But if a person never married and has no disabled children, but has other beneficiaries, then the beneficiaries do not benefit substantially from Social Security.
(Ex-spouses who were married for at least ten years can also receive survivor benefits based on the final Social Security income.)
That was my thought as well. My wife still works for 4 more years so I only need to pitch in $1,000 per month. I plan to do Roth conversions for the next 2 years while I have no other income so to avoid paying higher taxes later.
Good general analysis, but each person really needs to use this methodology to run their own worksheet. Your SS numbers and your 401k balance (and therefore withdrawal rate) will have tax consequences that he has not taken into account.
I ran this scenario myself and also came up with a break even age of 84. I ran the scenario comparing full retirement age to age 70.
Thanks Robert
You are right there is no perfect answer.
Thanks Barbara
great video to get us thinking. I'm one the 'option c' folks. I will have a modest pension from current employer ... if I took for lifetime would be about $600 per month, but if I take for only 10 years will be about $1400/month. I plan to use that plus some 401k to bridge me from retirement at 60 to whenever I take ss, likely 66 or 67.
💲💲 Great video ~ every year that you wait your social security payment will go up, so somewhere in the middle might be right for most people. 😊 I really don't see that spending all of your 401k before collecting social security is a great idea.
I ended up waiting 'til 67 and before I depleted my IRA
Before I retired at 58, I made a crude table comparing the cumulative number of $$ with SS starting at 62 some intermediate points and at age 70. I didn't consider that there are COLA increases in SS. I think the crossover point was at age 78, so I started taking SS at 62. By doing that, I didn't need to start drawing down my retirement savings.
I also rolled my 401(K) into an IRA and began doing Roth Conversions as soon as I could.
I do get a small pension and all "retirement income" is tax free in my state.
I think an important variable to consider also is spousal SS benefit. The high earner, (husband or wife) should delay SS until 67 so the spousal benefit is maximized. If you take SS at 62 in line with Choice B you are reducing the eventual SS spousal benefit which is based on the high earner's benefit. Maybe run some numbers on Husband high earner pre-deceases the wife by 5 years. Now look at lifetime benefit of the spouse, far better with option A I would think.
If the lower earning spouse elects to collect prior to full retirement age, the monthly benefit will be reduced regardless of whether it's a regular benefit or a spousal benefit. In other words, opting to collect before one's FRA means any benefit you receive will be less than what you would have received had you waited to your FRA. I know this is true for my situation where my spouse and I are about the same age.
Thank you. This is the first time I’ve seen the discussion moved from the “you get a guaranteed 8% for waiting to 70” without any regard to using 401k money during the deferral period to 70.
You bet
It is NOT guaranteed unless you continue working and earn the same wages/salary.
Not true. SS takes your highest 35 years indexed for inflation. So if you work past retirement age part time, it doesn’t reduce your payout. It doesn’t help either. However, if some of those years are in the top 35 of your earnings, it will increase your payment.
@@kirkland5674Both you and 3003 missed that 8% is the annual increase for deferring drawing to a later age, and the incremental increase in total $ if one lives past the breakeven age of 78-80.
Good analysis, however life expectancy better determined by family history.
Great stuff, Geoff. It’s about running the numbers, understanding we don’t control any of the variables, and with the very small difference in the options it’s ‘A’ I win and ‘B’ I win. Lastly, if you don’t have to, avoid leaving money on the table. This wasn’t true in the working years, but in the retirement years it can have a compounding effect.
Good presentation as always. Two things that affected my decision. 1: will your spouse be claiming based on your income? Your spousal benifit does not increase after your full retirement age. 2: how will your 401k MRD affect you in the future? Medicare income limits ect. Mine ended up being FRA. I also looked at family history to try to guess lifespan.
How about survivor benefit?
Spousal benefits don’t increase after FRA but survivor benefits do. But I’m planning on FRA regardless. 70 just seems too late to me. Dad made it to 82 and lower 80s for other males in the family tree, and my wife is 3 years older than me so I am expecting us to pass near the same age. Got to get back some of that money that was taken from us. From everything I have seen it’s a rare person who does much or spends much on anything other than healthcare once they cross the mid 70s and a more rare couple because one of you is going to be struggling with something. Enjoy it while you can.
I really like how you simplified the options and showed impacts of slight changes in COLA and returns. Many videos go into specific situations, which is great, but seeing it simplified is also useful.
The presentation is outstanding, I really don't understand the less than complimentary comments. My take is this, the total dollars are about equal.
I love my work and I won't be stopping until 70+. If the Lord takes me very late in life, choosing to have the highest possible SS payment makes sense - especially if no other pension is in place. If He takes me early, I won't have to worry about choices that made me short of cash in my later years.
Thanks for the comment
@@springleaf1035 what is you job?
Boy I would have liked this show 5-years ago!
My spreadsheets tell me to go with 401K asap and take ss at 62 (this year). I have been saving in my 401K, IRAs, etc since I started working at 25. Thanks again for your great advise. Jeff
I'm surprised that delaying 401(k) withdrawals wasn't the clear winner, because SS only increased 2% annually while the 401 increased 5% AND compounded! I would have assumed that leaving investments to grow and compound untouched for as long as possible would have always been the superior choice.
But the factor I didn't consider is that the boost to income from delaying SS is greater than 5%, so delaying the SS does indeed seem to be the winner in terms of overall dollars received. Plus, by drawing down one's investments earlier one isn't as exposed to wild swings in the markets, making income more stable later in life. Very interesting and counterintuitive.
Of course, the best option might be to delay both! Assuming one's life expectancy is long enough, of course.
Just to add a twist, you must consider health span rather than just looking at lifespan.
Your years of vitality are much higher 62-72 than the later years. My genes and lifestyle say ~93 but I know that last half decade or so will be very poor.
Thank you for this detailed, thoughtful analysis. Best on the subject I’ve seen on this site,
Jeff, your work is of tremendous value to me.
Great analysis, very helpful for this recently retired guy. Although, my first reaction was "401K is best" because could minimize the longer term tax effects of RMDs. I was disappointed this wasn't covered; wouldn't apply to all, but definitely for quite a few.
I would like to see this video updated for the recent 2023 COLA adjustment. In addition this video misses one aspect or retirement, monthly operating expenses. Taking SS at 62 caps your potential income if you still need to work. It would be nice to say, I'll keep working but it becomes a double edged sword. I don't know if anyone could live on $1,200 a month especially with Medicare premiums. I guess my point is , if someone elects to take 1,200/mo, they are going to need something else to live off of.
I will likely go with a mix of which approaches leave me less stressed. Thank you for your advice and tools to determine which is most practical and how lifestyle can impact that.
I will take data/likely trajectories of SS vs 401K into account then use that data (along with intuition/gut feelings). I am 61 and plan to work for a corporation for the next 11 years then move to consulting. Still working on/investing in keeping career marketable skills both current and more valuable. I know there is more risk of events outside my control of happening which could change this plan as I grow older though.
Your videos are helpful in understanding the more practical components. Even in deciding to stay in home which still has mortgage (plus insurance and property tax) vs downsizing. Moving to a smaller home does not currently make sense due to much of the costs being nearly the same (though a cost of maintenance and housekeeping are a bit stressful and could be reduced with a smaller home), Location is primary reason for staying put.
Just a long way to say that your videos make a difference. And they help me to think about things I prefer not to think about. Easier to take it in bite size chunks by watching a video then deciding if action is needed than is having the whole "retirement issue" to face at one time.
Thank you.
Plan B for me. I have plans for retirement. So many people never get to retirement because of illness. Stay healthy folks.
This information is immensely helpful. Thank you so much for the care and you put into your videos, while explaining it in a way that anyone can understand.
You bet
Retired at 63, which was 2 years ago. Living on pension plus 401k. Will go on SS at my FRA of 66 1/2, at which point I will reduce the 401k by what I receive in SS benefits. This will make the 401k last much longer. I do not have the same expenses as when I was working. In fact, although my overall amount to live on decreased by about 20% in retirement, I am able to pay all my bills, and still save money. And my bills include a mortgage that will be paid off in about 2 years, so I will have even more to save or spend if needed. And, I do not live in a tax friendly state. I am considering moving to a more tax friendly state, which will also increase my saving or spending potential. My advice is that everyone’s plan is individual and should be what is best for them. The one thing I didn’t realize in retiring is that although I live on 20% less than my working wages, I am saving more than when I was working. I have a comfortable reserve for unexpected expenses too. Perhaps it’s because I have a decent pension and a healthy 401k, that I am able to do this.
I guess the biggest negative for option B is you can't go back, once you take it you can't untake it. but with option A at any time between 62 and 70 you can decide to take SS. good for if there's a downturn in the market.
Not true. You can "untake it" if you decide you made a mistake by taking it early. Just pay it back.
@@lzgbe.1961 I think there is a 6-month limit for this.
At FRA, you can pause SS till age 70..
What a good easy to understand summary. My only concern is that a 5% return on a 401 K seems very optimistic at the present time.
It is conservative. The average is about 8% for an S&P500 index fund..
This is A GREAT idea 💡💡 Sir
I might do that to Delay S.S. withdrawal 😅😊
"Plan like you're going to live to 100 and live life to its fullest."
Love it.
I would say just the opposite. Not being pessimistic but, Live life like its your last day and to its fullest. Most will never see 100.
Please do a video taking into account the WEP 🙏🏻
That was probably the best evaluation I've seen done, and the different scenarios shown at the end were very helpful as further explanation. Thanks much.
I would like to see some extra columns that account for taxes and RMD's. I use the Retirement Calculator from Fidelity, and it is chock full of useful information. I get three different scenarios to choose from after I input my information: Significantly Below Average Market, Below Average and Average Market. It shows approx taxes and RMD's being pulled out; and it's free. But otherwiase, very good video about the basics, just needs deeper information. Now subscribed!
I'm 58 and educating myself if and when to kick back and relax... Looking at H.S. videos I'm feeling confident with my Military retirement that I started at 42 in December 2005. Working on my 401k with my employer sense 2006, and the uncertainty of Social Security to pay out 100% after year 2032, I feel blessed I made a few smart decisions in my life.
This is a really important point. If SS benefits are reduced, current recipients are not likely to be impacted. Someone that files and locks in at age 62 might end up with the same benefit that someone that waits until age 70 gets if the 70-year old gets impacted by a benefits cut prior to filing.
As a soon retiree, keeping my 401k on course after a rocky 2022 is top priority. I have been reading of lnvestors making up to 250k ROI in this current crashing market, any recommendations to scale up my ROI before retirement will be highly appreciated.
The current market might give opportunities to maximize profit within a short term, but in order to execute such strategy , you must be a skilled practitioner.
Having an lnvestment advser is the best way to go about the market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly cause I lack the depth knowledge and mental fortitude to deal with these recurring market conditions, I nettd over $220K so far, that made it clear there's more to the market that we avg joes don't know
I’ve actually been looking into advisors lately, the news I’ve been seeing in the market hasn’t been so encouraging. who’s the person guiding you?
Her name is Annette Christine Conte can't divulge much. Most likely, the internet should have her basic info, you can research if you like
Thank you for this Pointer. It was easy to find your handler, She seems very proficient and flexible. I booked a call session with her.
Another angle are RMD. I am trying to draw down my 401k and take SS at 70 because SS is tax advantaged when it comes to taxes with many states not taxing SS.
Go with option A and have a cash horde for those years when the market is down and you don't have to liquidate anything. I plan to pull enough money from my 401 to maximize the current tax bracket so I don't get killed at 72 when RMDs kick in. Another benefit in doing option A is after a few years of playing around (still under SSA FRA), I can pick up some work if I want and not be worried about making too much. I just need to eat healthier and make more time for physical exercise or none of this really matters.
By coincidence I did this calculation last week and came to the same conclusion, draw down the 401k until age 70, then take SS. And the main benefit is the lower RMD as well as a SS check that will cover my actual living expenses by itself.
But as he says, everyone's situation is different. Everyone needs to run the numbers for themselves.
We had pensions and fill in with taxable investments - 7.5 years of retirement so far. We plan to delay SS to 70 as well as 401k distributions to 72. This allows us to make ROTH conversions and at least reduce the RMD hit at 72. If we didn't make these conversions, we would be permanently bumped up on tax bracket, likely 2 when one spouse dies. Even more important if tax rates increase too.
401k balances can be left to your family if you pass on as an inheritance. SS cannot. The government keeps what you and your employer paid in all those years .
And if you run out of money the higher Social Security check will help you
There are SS survivor benefits.
And if you run out on life government keeps it. Just like a annuity, the sooner you die the more they win(gvmt).@@johngill2853
I am single and have no children, so it does not matter.
@davidwild3888 They're only for spouses, divorced spouses and minor children.
Totally different from 401k where you can choose anyone to be your beneficiary
I think there is one more item to consider. Relying 100% on government income vs. a combination of personal income + government income. Also, once personal funds are depleated, you no longer care about the market action in either direction. Your standard of living is stabilized. No windfall market return to buy that new car, and no devastating market crash to shut down current spending. SS is inflation adjusted. Market returns are not. A lot to consider!
also use option c, take ss at 66! just a few years on 401k only so you don't deplete it, get ss up to a higher level ... middle ground looks good to me!
@@jimclark5037 absolutely! We think that is perfect.
@@jimclark5037 I'm getting very tired spinning my wheels on all of this. I love Geoff but, a 10k difference over many years is not the issue for me. It's the bigger stuff - spouse, children, work stress, etc. I must meditate more ...
Once your personal funds are depleted, that’s it. I’d rather use up the government’s money first, then save my savings for things like healthcare or other major expenses that might occur further down the road.
Thank you for the video. I'm fifty eight so I need to start looking at my options. I have never married but have eight nieces and nephews I would like to leave something to (or for?). I'm in better financial standing than the example though.
Tax situations and the RMD scenarios would be different between the 2 options. Just a few more considerations to think about.
The best predictor of longevity is parents age at death. Mine both dropped dead of stroke at 71 and 76 so I took SS at 62 and retired. I had no urgent demand for money so we lived off SS and savings and let IRAs grow. Many years the growth was 10 to 15 % so I believe that was a clear winner. The danger is not that you live to 100 but that you die at 70 and lose the years you deferred SS payments. I believe the market will beat the annuity style SS payments.
Agreed, my mom died at 65 of cancer and my dad at age 80 from multiple health issues. I am retiring at the end of Feb 2024 and will probably start drawing my SS early in 2025 after I turn 65. I'll draw on my savings to bridge me over until then.
I plan on pretty much splitting the difference on this one. My FRA is 67, I plan on retiring at 65 and 1 month and taking my SS at that time which is predicted to be $3100 per month and I can also enroll in Medicare as I will have to purchase my own health insurance. I live pretty frugally and only plan on initially pulling $1,000 a month out of my 401K and/or IRA's until I have to do RMDs at 72. Not a lot of longevity in my family and I want to enjoy as much of my retirement as I can! Planning to 90 but the odds of me living past 80 pretty much against me given my family history.
This is exactly what I am planning on doing and seems to make the most sense. Splitting the difference so to speak.
This is a emotional and family decision, not a mathematical decision. If I die, I won't be here to care if I 'lost' money because I delayed SS. If I die, I won't care if my 401k balance is low. If I die, I don't care whether option A or B is the winner. The only people who care are my heirs (if I have any). So, the analysis must be done from two different points of view. 1st, from my point of view. 2nd, from my heirs point of view.
The 2nd one is a combination of your quality of life in retirement in combination with your heirs' point of view. Unless you have a spouse that will live much longer than you, and/or perhaps disabled dependent children that must be cared for, nobody has an obligation to work until they die or sacrifice in retirement just to provide perfectly capable people an easy ride through life.
As Geoff said, plan as if you’re living till 100. You don’t want to become a financial burden to your “heirs”.
Good discussion! You are confirming some points that I have seen from other researchers. The main one being that drawing from your portfolio to delay SS DOES NOT NECESSARILY LEAD TO A SMALLER PORTFOLIO OVER TIME. This is a little counterintuitive, but is a huge point, as most people taking early are worried about losing money in the future.
Obviously there are various assumptions, but if a portfolio is modest, say 750k to 1.5million, choice A can be better or at least equal.
Delaying creates less longevity risk, much larger survivor benefits, and if you live long a lot more money. I’m delaying to 70, but my wife claimed earlier due to other factors.
Finally someone agrees with my math. I did the same analysis and found that my break even was around 85 the same as your calculations. SO for me, I am going to take SS early. Tomorrow is not guaranteed. I want to enjoy life in my 60s and 70s, if I have less when I am 90, so be it. I also used 100 years old to plan my retirement. So many EXPERTS are just lazy and plan a 4% return on your money and live forever.
Thanks for the comment Terry
At 63 I am well on my way to retiring comfortably at 103.
I will definitely go with Option A since my wife is 12 years younger than I am, and I want her to spousal benefit to be higher as a result of my delaying SS.
That will work but she won’t be able to claim her own social security retirement benefit, assuming she has one. Social security survivor benefit is not additive, she’ll get the higher of the two.
@@puffyelvis5895 Correct. She will start collecting her own benefit early, at age 62 at which point I have already been claiming for four years starting when I was 70. Then at 67 she will switch to claiming her spousal benefit.
Background: My wife came here from the Philippines and started working 4 years ago. She is 39 now. And although she will work the required 10 years to build her own benefit, her full benefit is unlikely to be larger than her spouse benefit at full retirement age.
So that's what we're looking at.
Good plan.
That makes sense. Good for you thinking past your own mortality. One of the highest compliments a man can receive is that he is a good provider.
Would love to see you do a similar video and add an additional factor -- how your choices would be impacted if you also had a pension to draw income from? TIA
future legislation changes and bucket strategy add a lot more complexity.
Retirement planning and S.S. claiming strategy is more complicated than this. But this video is a good introduction. Planning should be started several years before retirement. Money spent on a financial advisor is well spent. Or at least do a lot of research. Not just a choice between claiming at 62 or 70; claim any time between. Other considerations are when you plan to stop working, whether you are single/married/divorced. Earnings history of spouse. Usual advice is for lower earning spouse to claim early and higher earning spouse defer until age 70. What tax bracket you are in.
If you live on savings/401K/IRA in order to postpone S.S., the withdrawal amount is flexible versus fixed amount from S.S. Social Security is an inflation protected annuity that you won’t outlive. Don’t forget that starting at age 72 RMDs require you to take distributions from 401K or IRA and these distributions INCREASE year by year such that little will remain for your heirs. This is an argument to convert to Roth IRA that has no RMD for primary owner.
Thanks for the comment Carlam
Overlooks a critical aspect where most have far more than 90k in pretax… drawing down as much as possible prior to RMD to avoid huge taxes.drawing SS does little except either allow,you to draw down less or pay more in income tax that year @ a higher bracket.
I'm so happy to be in Option C; doing a job I love, so I don't mind working through 62 and padding the 401k plus my employer's matching funds.
Very well done analysis
Thanks for this analysis. Re-created your sheet and added a 3rd option (Draw both SSS and Retirement Accts at 62). In my case, Option B is a better choice while Option C comes in second. Added benefit, with Option B, of annual payments start below the federal minimum taxable income until age 69. Analysis did not include Roth IRA which can be used to pay taxes in the future.
Good work!
Do you mind sharing your spreadsheet?
So it's basically a wash which is really a good thing. This way depending on your situation you can go either way. So if you need to take SS sooner rather than later to say unlock a spousal benefit then you can go ahead and do that and not worry to much about the alternative scenario.
Because the results are nearly identical, the spreadsheet may need to take more into account. For example COLA adjustments prior to drawing SS to account for the likely increased actual SS draw at 70; the effect of stock volatility risk (early vs late);
Might result in something too complicated to give a clear picture, however.
I made the decision to go option A. Really got prepared several years before I retired at age 62. My expenses remain extraordinarily low and I remain without debt now that I am 65. I plan to start drawing SS at 66.5, my FRA. I made much more money the last ten years of my work life and thus have a much higher than average SS at 66.5. Additionally, I had tested my budget before I retired to see if my assumptions held. Put enough cash aside the last three years to blend with the IRA draw downs to stay below the taxable amount for income. Also, took advantage of ACA since my retirement income placed me in full subsidy range.
I am single with an only child who may or may not receive an inheritance of my home. I am not planning to leave cash unless I should have much lower than expected expenses as I move into my eighties. My family history suggests that I have a much better chance than average to live into my nineties, and right now my health remains good. Life expectancy is of course a wild card under the best of circumstances. My total budget for these years has been $36000, and about 50% of that is fun money, so the strategy did not prevent me from continuing with my hobbies, decorating my home, and light travel. The pandemic actual kept my expenses a bit lower than expected. I have not adjusted for inflation, have had no need. Yes, groceries are more, but I no longer find eating out enjoyable at the new price.
I did not have a large IRA, but will have a bit more than half of it left when I start SS. I did not wait until 70 because I still wanted some access to cash amounts in case of large maintenance items on my home or the need for another car. Car seems unlikely for quite some time though. I will be living on $42000 annually at 66.5 which will be adjusted for inflation annually if needed. I just could not pass up the guaranteed, inflation adjusted annuity from the government. Neither was I willing to continue working just to preserve the IRA. My SS was not going to change very much with the added years of work and the high stress environment that pays the kind of money I was making was going to kill me. I am very happy with my decision.
Sounds much like my plan. I retired at 64, delayed SS until 67. I didn't want to liquidate all my IRA funds, saving some for unforeseen expenses.
Nancy that was an excellent comment. I really enjoyed your well reasoned take on the financial decisions you’ve made.
My goal is Opt A....BUT working until FRA at age 67. That limits the amount of draw down on the retirement account. The way I see it, that is a a little less than 24% ROI with no risk, oh and part of it is tax advantaged and will get a small bump against inflation.
@@Hawkeye2001 great option.
@@melblacke5726 So, your goal is option C? Working to FRA. Also, don't forget the forced distribution for your IRA/401k at 72. I did not see that anywhere in the calculations but it probably doesn't really matter.
I retired shortly before FRA and delayed starting SS until roughly FRA. I guess this would be option C. LOL. Sort of a middle of the road approach. I didn't feel comfortable waiting until 70. Family history made this seem the better choice.
Geoff, even though you proved it works the idea of wiping out a lot or all the savings is a very scary idea. Retiring early and if you have enough money where it's not almost gone by FRA or 70 is a whole different story. I'm in the "other" category ... don't rely on SS until FRA and retire at 65 and then draw from IRAs. 😀
Thanks for the comment
You can analyze every detail and try to take control of your finances. That would be great if you can predict the future and certainly feels good but there are no guarantees in life . It all depends on one's health, I can't predict my health though.
Option A is normally better but this example doesn’t highlight the current 12,950 standard deduction.
With the 401k you can change the amount of withdrawals each year.
So instead of 14,400 each year it could be:
62 - 12,950
63 - 13,350
64 - 13,750
Standard deduction increases each year.
If one need more then but the bullet one year and pay the 10% taxes otherwise you’re at 0 tax.
The more years you have combined income the higher taxes one will normally pay.
If you live in a tax state like NY where the standard deduction is only $8,000 you have to factor that in as well.
@@clownpocket yes good point but there are a ways to avoid:
1. A person may still be able to itemize for state vs standard deduction for federal. So may still take same withdrawal matching up to fed standard deduction
2. Person can move out of NY then don’t have to worry about state income taxes
Either way though better to stick with Option A because the more combined income years one has then the higher state taxes would even be as the percentages go up via brackets.
For NY as example better to be in 4% bracket vs 6%.
I am waiting to take SS for 1-2 years. If I draw a minimal amount on my 401K, that will leave me in a low tax bracket for the taxes I need to pay. I can also do Roth conversions while not drawing SS. In 2026, the tax rates go back up.
Scenario example seems pretty simplistic. Size of the 401K and withdrawal amounts are unrealistic. Does not account for taxes. Does not account for having other funds in a brokerage account or pension. Delaying social security also allows to do Roth conversions early in retirement. The only valuable lesson from this video is that either option could be the right one depending on your situation and assumptions so you should review in more detail with an advisor. That said, from my experience if you can afford to delay social security you're usually better off to do so as the 8% increase in payout is hard to match by conservative investments. Inflation is one one of the biggest on going risk for a portfolio and having a large social security payment adjusted for COLA mitigates this better.
For me A seems better though I do not like the idea of depending on a government program which could/will change. Since I love my work and continually acquire additional marketable technical skills, I hope to work corporate for the next 12 years then move to consulting. Fate and real life may not support that though. I am almost 60 and love watching your videos so I have your input regarding backup plans. If people in their 80s can be president, surely it isn't a stretch to believe I can move to consulting in my early 70s. I am not overly enthusiastic about long trips during retirement or before, but I do plan on an Alaskan cruise and many staycations or day trips in my life. THANKS!
If you’re well setup for retirement or even if you’re close, it seems best to just take the money as soon as possible and enjoy the time as fast as you can.
if you are well set up of course, it is easy. but if you are not well set up, what to do, what to do, please. how can you be sure you are well set up in world that is constantly changing. what is your plan for change, please?
This is great information and I love the analysis you can go on all day about the what ifs. The problem I have is the age in which he is referencing we will live until. I think it's too conservative. I'm under the impression life expectancy for women is into the 90s . I base my retirement calculations on living 30 years past retirement.
It's important to consider the tax implications. I have the good fortune of having a pretty good Gov't pension after working in Engineering (a relatively higher salary occupation) for 3+ decades. So any 401k withdrawals or social security payments are going to be fully taxable on a Federal level & possibly partially or fully taxable at the State level, depending on what state you live in - I'm in a blue state, & am almost fully taxed due to income level. Social security payments are taxed at 85% max at the federal level, for me personally, 75% at the state level. 401k withdrawals would be taxed 100% at current income levels. So taking soc security edges out withdrawing from 401k by a hair for me. I have health issues too so am figuring on age 84 being optimistic (I'm 62 now, just started taking soc security).
Everyone forgets one huge thing !!! It’s called life and it’s not always what can be planned on we cannot predict life so I used my 401 k first paying in taxes as needed then letting my SSI grow I now take it showing no retirement so my taxes are less and so far my health is good not perfect but good !! Will I live to 80+ only time will tell as life if a gamble!! Since I have been retired for almost 15 years now and owning my necessary needs I took out a long term disability insurance to cover my income and home for at least 3 years so if it becomes necessary to go into the nursing home it will pay until I die. Meanwhile the home at my assets are somewhat protected for the family. Next take out a trust to keep the courts out of the estate. One thing you must understand you will not live forever a lesson I learned when my parents died ! So only plan to be comfortable and pass that lesson to your children!!
I look at SSA as a longevity payment for both me and my (slightly younger) surviving wife. In that case the age 70 payments will pay far more over both our lifetimes. Also if you chose to collect at age 62 you lose some flexibility. Deferring to age 70 isn’t set in stone. You can always change your mind anytime between 62 and 70.
Good video than Mr Schmidt. I’m not a proponent of Social Security I believe it needs a major overhaul. Its obviously underfunded because of its funding scheme and government is usually a very poor investment vehicle (near zero percent return). With that said we all in this condition together and videos like this are helpful.
Social Security is not an investment. Social Security is insurance from death, disability and old age.
your are right of course. help me understand, what major overhaul changes do you recommend. thanks for sharing your analysis , my friend
I never thought of this! Wow.
Thanks Mark
Many points to consider. Excellent content and presentation, as always. Thanks, Geoff!
Plan A is my choice except I will claim at 67. Semiretired now at age 60 with a pension and p/t job that covers the monthly expenses. However, Plan B will be my plan B if I become separated from the p/t gig before 67 for whatever reason. I will start to withdraw 5% from my 403B next year and start the rollover process.
My issue with all the planning that assumes living to 90 or 100 doesn't take the probabilities into account. 1 out of 5 on average make it to 90. 1/10 make it to 100. That means 4/5 don't. So 4/5 (80 %) give the time they could be living to planning for something that never happens. Retired at 60. Might have enough to live to 90/95. Odds are that i wont have to worry about it. LOL.
Schmidt, I am a healthy 59 & 1/2 retiree with a 7-figure 401k; I plan to take SSI at 62 due to the gamble of everyday life. I would prefer to leave my children some inheritance and get much of what I paid into the SSA. I also plan to convert my 401k and pension into a Roth IRA via the back-door. What are your thoughts on my scenario?
Best channel!! 😊
My father died at 65 by a hereditary condition and my mother died at 66 with by a different hereditary condition. No one in my extended family has ever seen their 70th birthday.. My best bet would be to collect S.S. as early as I can if I chosen to quit working early.
Be sure to have a (financial) plan in place if it turns out you do happen live much longer than your other family members.
I had 10 years contributing to my ROTH 401k which allowed me to retire at 53 y.o., spending the principal without touching the gains in addition we sold the house than bought more real estate that has done very well along with a 72T withdrawal. Now at 59 will start ROTH conversions til 62 then will again rely on the proceeds of real estate sales, the ROTH conversions to get me from 63 to 65 when Medicare starts looking poor on paper so I do not pay any Medicare premiums. I’ll delay (SSA til FRA for me as the survivor benefit is only good to FRA)and will take my wife’s SSA at 70. At least that’s the plan.
Social Security is insurance, plain and simple. If your health is good , it is always wiser to wait at least until your full retirement age to collect . The only caveat to this is if delaying would impact your life in ANY way then you should go ahead and collect or maybe go back to work for a bit.