us social security start at 62? tax question

[steve2112]

i'm eligible to start receiving my US SS in a couple of years at age 62. i would get about $1200/mth. i know if i wait to 65 it goes to about $1500/mth and 67, $1700 or so.

 

i also have private 401k money coming in and plan on withdrawing about $10,000/yr

 

i think i get taxed on both SS and 401K/IRA withdrawals as ordinary income right? so to minimize taxes, do you think better to start SS ASAP so as to minimize yearly income over more years?

 

also, your general thoughts on when to start SS?

 

BTW, i file as single even though married to thai

 

thx

[steve2112]

i see i get a standard deduction of $12,200 and the next $9500 is taxed at 10% then it goes to 12% after $9500 to $38000

 

so if i take $1200/mth x 12 = 14,400 + 10,000 = $24,400 - 12200 deduction so is guess tax on remaining $12200  will be $1120 right?

 

also, just thinking, i was last resident in CA which has a state tax of around 2-3% at low income levels. probably not worth 'moving' to somewhere like AZ for that.

 

maybe i obsess about tax too much but the idea of spending one cent to pay for trumps golfs trips etc just makes me sick

 

anyhow, still interested on hearing people's thoughts on when to start taking SS. my feeling is get stated ASAP before the gov raises the age or reduces amount

 

[RoadWarrior371]

26 minutes ago, steve2112 said:

 

maybe i obsess about tax too much but the idea of spending one cent to pay for trumps golfs trips etc just makes me sick

 

anyhow, still interested on hearing people's thoughts on when to start taking SS. my feeling is get stated ASAP before the gov raises the age or reduces amount

 

I am no expert on SS, and quite a ways away from collecting SS.  From a financial perspective, it seems the savings from deferring until age 65 in your case seem to only materialize after age 80.  How I would approach this... if I anticipate having a large retirement surplus at age 77+, why not collect early?  Otherwise, you may choose to defer if you feel the marginal payment increase after you are 80 years old will be needed.  IMO

[timendres]

You should not fear the age being raised or the amount reduced. In general, when the age requirement is raised, it is "graduated", meaning they push it up for the youngest people, but do not move the target for those close to "retirement". Also, they are unlikely to reduce the payout. They typically just reduce the benefit's COLA.

 

The question of when to start is simply answered with "It is always better to wait as long as possible". However, that truth really depends on how long you estimate that you will be pulling the benefit. If you are in terrible physical condition, and doubt that you will live for many years, then sooner is better. However, if you expect to reach the age of 80+ (which, amazingly, both of my parents have achieved), then 15 years (180 months) of an extra $300, means a gain of $54,000.

 

My plan is to work until 65, then retire and file. At 65, my SS benefit will cover the current 65,000 THB income requirement for the retirement extension (even though I will likely put the 800k in the bank just for the simplicity of it, and the potential grandfathering if they decide to raise that number). I personally do not see the advantage of waiting an extra 2 years (to 67) for the marginal increase I will see.

 

You have to weigh this against drawing down your 401k. I prefer to keep the 401k in reserve, with the added benefit that it can be passed on to my children upon my death, whereas SS simply stops. Since I expect to work until 65, I do not have to draw down my 401k.

[PingRoundTheWorld]

I have never looked into SS income taxation before as I have a good 20+ years to go. Apparently you are only taxed if your adjusted gross income (AGI - income after deductions) + nontaxable interest (municipal bonds and such) + half of your SS income exceeds $25,000. Or $32,000 for a married couple.

 

In your case you would have an AGI of $0 because $10,000 from your 401k is below the standard deduction. Half of your SS income is $7200. So you're well below the $25,000 threshold and would owe no income taxes whether you receive $1200 a month or $1500 a month from SS.

 

You could effectively pull out up to $12,200 (the standard deduction) a year from your 401k, and get your SS either at $1200 a month or $1500 a month, without paying a penny in taxes. Assuming no other income. The standard deduction adjusts for inflation, so in future years you could pull out more from your 401k tax free if you wanted to.

 

California specifically does not tax Social Security benefits, but it DOES tax 401k distributions. Having said that - assuming you live in Thailand and only visit California occasionally for short periods then you are not a resident for tax purposes and owe them nothing - you don't need to file a tax return there. You are only a resident if you maintain a homestead there or live there a significant portion of the year.

 

P.S. Goes without saying that I'm not a CPA and this is not professional advice - just my understanding from what I found on the subject, which I believe to be accurate.

[PingRoundTheWorld]

8 hours ago, timendres said:

You have to weigh this against drawing down your 401k. I prefer to keep the 401k in reserve, with the added benefit that it can be passed on to my children upon my death, whereas SS simply stops. Since I expect to work until 65, I do not have to draw down my 401k.

Depending on your tax situation - if you can pull out any amounts from your 401k tax-free, you should. After you pull them out re-invest them in a Roth-IRA, so the interest/gains on them is tax free when pulled out in the future. Otherwise the interest you continue to accumulate will be taxable under the 401k when taken out in the future. Roth IRAs just grow tax free and can be pulled out tax free anytime after age 59 and a half.

[PingRoundTheWorld]

As for whether to file at 62 or 65... how long do you realistically expect to live? 75? 80?

 

Taking out $1200 for an extra 3 years will give you an extra $43200 over starting at 65, but then you will "lose" $300 a month from 65 onward. If you live to 75 that's only $36000 "lost" so not worth waiting for sure. If you live to 80 that's $54000 so about $10k "lost" overall.

 

Keep in mind the time-value of money: $43200 extra today (over 3 years) is worth more than $10000 extra over a period of 15 years. Personally I would take $1200 at 62 over $1500 at 65 - but I would try to funnel some into a Roth-IRA if possible, with interest/gains over 18 years even a small amount could significantly reduce/eliminate the $10,000 gap. Of course easier said than done - especially in the LOT (Land Of Temptation) ????

[steve2112]

thanks for all the great reples, especially PingRoundTheWorld for the tax explanation, i didn't know that.

 

i did already know that its at about 80 when you start to see the benefit of waiting to 65

 

that's a long time and even through i'm in ok shape physically and expect to be around past 80, realistically how much longer? 90 maybe?

 

since i'm kind of jia ron anyhow, i like the idea of free gov't money ASAP, but that's just me

 

thanks again all who replied

[cmarshall]

1.  Lowering your income to reduce taxes is, frankly, idiotic.  Why not go broke then and pay no taxes at all?

 

2.  It sounds like you are planning to pay CA taxes and yet I am guessing that you live in Thailand.  If that is the case, you need to review the tax domicile standards for CA and carefully separate yourself from the state.  That means surrendering your driver's license, not owning property, not using professionals in the state, etc.  CA is particularly aggressive about claiming tax liability for expats, so you have to make sure you do not meet any of their criteria.  There is no need to establish residency in any other state.  I haven't paid any state income tax to NY since I retired to Thailand.,

 

3.  There is a much longer thread about when to claim SS.  The punchline is that you should delay as long as you can afford to.

[ballbreaker]

If you go with your plan of taking SS and $10k each year from 401k you might be in for a surprise depending how much is still left in tax deferred accounts at age 70.5.  You may find you owe a lot more in taxes because you are required to pull out much more than $10k each year.  Keep in mind when your age reaches 70.5 there is a minimum required distribution each year from your tax deferred accounts.

 

[Rhys]

...as many have stated, it all depends on you 62-65...Only you can decide based on the various narratives given on TV... Visa situations are a factor, if you retire, it is a factor, if your are extension of stay based on marriage to a Thai that is a factor.  If you just want to watch the rice grow or watch the waves cycle that is the choice... you have earned... The rest...et al...takes care of itself.

 

Enjoy yourself, take care of your money as you have, but in the end, it depends on your unique situational needs.. Best of luck.

 

The 62 option 1122/month is fine.

[olfu]

^{Go to SS office and ask--its free to ask.}

^{But age 65 for retirement don't exist anymore--its 66 or 67 depending on your age.}

^{If you are healthy  you should wait till 66.}