Accurate asset allocation is crucial with an Experts guidance. I have 850k in equity, 300K cash earning 5.25 interest, 685k in 401k, 250k cash account, 120k in car assets ( paid off cars) Gold and silver bars. age is 64. My advisor helped me realign my portfolio to my risk tolerance and it boomed overtime.
Laura Grace Abels is the licensed advisor I use and im just putting this out here because you asked. You can Just search the name. You’d find necessary details to work with to set up an appointment.
Thanks for sharing. I curiously searched for her full name and her website popped up immediately. I looked through her credentials and did my due diligence before contacting her.
OMG, I am so glad that the algorithm tossed this video to me. I am 63 and just got laid off. I decided to retire and this exactly the scenarios I was going to sit with this afternoon and try to work out for myself. Absolutely a life saver.
I’m one of those Costco employees (for 24 years now) As I approach retirement (I’m 57) I’ve been blessed with the generosity of Costco and their “match” I understand that when a company matches their employees, it’s typically a percentage of what the employee puts in. Well, with Costco they put in a percentage of my annual income as a discretionary contribution in addition to their “match” So basically Costco after 20 year ( it’s a sliding percentage) is putting in 9% of my annual pay. It’s why I’ll retire at 64 ( which I selected) with almost 1 million in my 401k. ( I am an hourly employee, never been in management with Costco. They treat us RIGHT! I appreciate all of your videos and that you use “average Joes” income. So tired of seeing many on TH-cam the their clients have 4-5 million at 62. I’m good at math, I just deal with numbers all day and would rather you, the expert, point it out. Thanks again and much peace to you, your family and channel!
I have friends who cannot stand being alone as a younger person. I noticed that these friends come from large families. Im sure when they retire, they will continue to struggle for being alone. I’m the opposite from a small family and enjoy being alone with my thoughts. I can just go to my swing chair or hammock and swinging for hours and be at peace for being alone.
It depends on your objective. Stability: If you want more guaranteed income, then delay taking social security. If you want more control of your income then take social security early. Life Expectancy: If you think you'll live until 85+, delay taking social security. If you don't expect to live that long, collect social security early.
Nobody can guarantee return. Not Even the best profolio manager. If someone can guarantee 7% for me. I will give him or her than 1% if they think they can average 8% every year. Meaning even if the market is down for the next 5 years, they still need to give me the 7%. There is a reason many fund managers put money on bonds and US treasure bills as well because those are guarantee return.
I don’t know about the conclusions on this video. Sure, you get 2 more years of living beyond your means but after that the pay cut is down to $1200 rather than $2500. What was missing was the projection for what happens if he works another year or two. YOLO and all that, of course, and he’d be trading the best remaining years of life for $$, but it does not sound like this budget allows for vacations in Monte Carlo. A wise man would ask what he’s going to do with those two years. If it is watch cable ‘news’ while drunk on Miller all day every day, maybe working ain’t so bad. Fewer hangovers.
i appreciate you addressing an audience on a modest income. Every other retirement advice youtube video I have watched is for people retiring with one or two million in assets. Keep it up! It gives hope to us planning to retire with modest savings!
I aint got a house i rent, I figure cost of living. expense. I rent for peace of mind. we got 3 mill and wiffy still works 240k taxes and i dont touch my 401k or portfolio. she works for medical..
I turned 62 in August and will be getting my first social security check in 20 days and plan on investing a portion of it every month. I do not have any debt. I work one day a week and do not want to withdraw any money from my 401K unless it is necessary. I need some time to heal my mind and body, after putting in too many years at a physically demanding job!
@@lolatu8255 It is going well! I still haven't touched my 401K yet. I like to work and will continue to work at some job, just something I enjoy that won't ruin my health and maybe just part time.
Love how u explain things so simply… I taking SS , early .. because , if I die government doesn’t pay , ss.. my other investments can be , inherited to my kids
Yes the balance at 72 of the 401k bucket is higher if you take SS early, but you are not bringing up RMD's which if you leave more in the 401k will bite you where you now are suddenly forced to take money out even if you didn't need it --> big tax implication.
I have two pensions, Social Security, and 401K withdrawals. I’m making more in retirement than when I was working. Use all the funds you can your hands on right now. NEVER DELAY!!!!!!
We retired at 60 and will have to 2 pensions and SS as well and a healthy amount of pre-tax money. Not taking SS until much later and doing roth conversions now. If i don't I will pay alot more in taxes when RMDs kick in and one one of us passes away.
Good for you! The terrible advice that you are giving here, telling people to “NEVER DELAY” , is that people have different situations. What is good for you may not be good for someone else. People should consider their situation and make an educated decision about when to file!
Other important factors (1) Health at time of retirement (2) what, if any debts remain, (3) 401-k Balance I’m fortunate enough that I will receive a pension when I retire, I also have an IRA, as well as a 401-k that I can draw upon so drawing social security before age 67 won’t be necessary If you can eliminate your debts before retirement, you health is reasonably good, and you have a substantial 401-k balance then rely upon those before drawing upon social security
Why? You offer advice with no explanation so I would be interested in your rationale for advising people to hold off on collecting SS. Even if I didn't need the SS check at 62 I would think that investing the money would be better than just not taking it until 67 or 70
Great example of what to look at when deciding if you should take SS at 62. It's what I would call a breakeven number. Basically, does the return on your money make enough to cover your expenses, plus allow for reinvestment to stay ahead of inflation and grow your account. In this case, you only need 1800/mth, which is roughly 4.32% of 500k, if we assuming a 5% return then no. If we take the market average of 8%, then definitely yes. If we go a little conservative at 7%, then we are still at a decent yes. Especially if you add in the fact, you will get cola increases on the SS. One big item worth noting, is in regards to taxes. If you are only pulling 21600 (1800x12) from your taxable account, you will only have 1900 of the 14400 (1200x12) SS taxable. So, your taxable income will be 23500, minus the standard deduction of 14600 (2024), which leaves you with 8900 in taxable income, so your taxes would be 890 dollars. If you are pulling the entire 3000 from your taxable accounts, your taxable income will be 36000, minus the standard deduction of 14600, which leaves you with 21400 in taxable income, so your taxes would be 2336 dollars (or 1446 dollars more than if you took SS). That's 120 dollars more in your pocket every month, which could be a couple of good meals every month or one good date night with the girlfriend. Another item worth noting, is if you do have someone to leave your money to, if you don't take SS early, you are spending money they could inherit, for an income they cannot. If you haven't dealt with SS after someone dies, let me tell you it stops immediately. So if you did take it early, you are keeping an extra 1800 dollars a month in your account, 21600 dollars a year, 216000 after 10 years. That's a chunk of change. Of course, if you have nothing or very little saved, you need to wait as long as possible to take SS.
Your analysis is way better than most "experts". However, everyone needs to look at the whole picture. Your example is quite similar to the situation I had and taking at 62 was a no-brainer. An elephant in the room nobody talks about is state taxes. I live in a high tax state and taking $ from my IRA (or 401K) is subject to state tax where SocSec is not.
Healthcare is a big expense that isn't factored in. My wife is 4 years younger than me. I'm delaying SS until I am 69 and she will be 65. Then, we can both be on Medicare. She is currently on Obamacare. We are living on my pension and savings right now.
Be careful with the medicare penalty if you don't sign up for it at 65. I had planned to wait till 70 to take SS, but found out last year that my federal health insurance retiree benefit doesn't count as "credible coverage", so have to sign up for Medicare at 65. Bullet dodged, penalty would have been huge for delaying till 70.
I ran the numbers based on what you had. It came out either way he would run out of money about the same age. If he could get 6 percent or Higher return, then he would be better. The real issue is the average cost of living is around 3.412 percent for the last ten years. The average cola on SS is around 1.52 percent. That's where people run into trouble. You have to find a way around the difference. A lot of people are moving out of the USA to other countries like Philippines about 400,000 Germany 400,000 plus other countries in Europe like Italy, Spain etc. Mexico is expected to be building a lot of homes for people like expats. People are looking for a better place to retire and get more for their money. Thank you for the video.
I'll have a pension and access to a 401k and 457b when I retire at 60. My plan is to get a p/t job so I'd delay SS until the p/t job is done. I'll do pension, 401k, and p/t job first. When the p/t job ends, then I'll replace it with SS.
Great idea depending on your state of residence - if it taxes SS payments. If not, and if either presidential candidate does what they promise and eliminate taxes on SS - take the SS instead of your 401k.
@@RedEyeC things change after someone is elected. They love the fact that most people have the memory of a goldfish. Gimmie your vote, than after elected, their promises never happen and people forget about it.
@@RedEyeC MD doesn't tax SS. If I don't get a p/t job, then I'll take SS at 62. My wife is a high earner and won't be retiring until the year I turn 65. I need to keep my income low at age 63 and 64 to avoid IRMAA since it looks back 2 years at joint income. During those years, it will be a pension and a p/t job or a pension and SS.
Interesting, a few considerations: remember SS gets COLA increases every year and as we age our expenses tend to decrease since we are not doing much in our 70s and 80s compared to 50s and 60s
A thought... Why not, when you begin tapping your 401k, use a fixed percentage, say 4%. No inflation adjustment, the only adjustment comes from the market performance. This simple method protects your 401k during market downturns while paying more over time as the market does well. As the market usually overperforms all other investments, over time, the seems a solid strategy. The only hitch I can see is that you have to be ready to tighten your belt during downtimes, but don't we really have to do that anyway? Thoughts on my kiss principle.
I wish content like this was available when I was starting out. I retired this year at 60, forced out. At least I had managed to save and teach myself investing. My plan is to take social security when it makes my withdrawal rate 5 percent or less from my portfolio. I could never swing a house, life long renter, so that's a worry. I am also alone, no spouse or kids, which is a concern but I think things will work out. I try to be thankful for what I have, knowing it could always be worse. Life doesn't seem to get less scary as I get older.
Am I missing where the COLA is accounted for in scenario 1, where you delay till age 70? Wouldn't the 2125 SS income have grown at 3% too or at least 2%? The 2125 figure was quoted to him at age 62. So, for instance, at age 63 his projected SS at age 70 would be 2189 (if COLA is 3%) and would go up every year? He'd be bringing in at least 2637 a month by age 70, yes (again, at 3 percent, but for sure more than 2125)? My projected SS income at age 70 goes up every year. That makes your money go a bit further than what's presented. May not catch up to scenario 2, but still, the math seems off to me.
I don't put a COLA on SS until it is claimed. Just me being conservative in my approach. After 2033 SS is going to have issues anyway so this is my way of preparing for that.
The analysis is missing both COLA in scenario 1 (similar to the inflation rate), and the tax burden on SS. In the end scenario one should come out ahead.
Thank you Drew. This one video made me subscribe to your channel. You explained something that none of the other retirement TH-camrs explain. And I watch a LOT of retirement videos. This helped me decide what path I'm gonna take. Thank you so much and I look forward to your upcoming videos.
Drew, thanks so much for this one! My situation is very similar to this example and even thought the numbers are a little different this has been such a help to me and has given me things to consider! Thanks!
I’ve seen an analysis that argues for taking SS at 62 NOT NEEDING it to live on - just taking the SS money and putting it to work in the market. Guess what - you come out ahead versus taking it out at any time later, because that 8% growth beats the increased income taking SS at any later year. Thanks for this clear explanation - whether or not you need the SS money, it pays to take SS at 62. Really helpful and clear!
It doesn't pay to take it at age 62. This video is misleading. Drew doesn't include the eight years of annual COLAs in Scenario #1. Read some of these comments, including a lengthy comment by mean that explains it all.. Others have pointed it out as well. It changes everything. Yes, if you can guarantee an 8% return during that specific period in time, in that specific window, 8% for each and every year, it will push back the break-even point... a bit. Good luck with that. Otherwise, it's better to DELAY drawing benefits for as long as you can... providing you do live to be in your early 80s.
Good video. My situation. Was similar. I retired at 63 with a $1400 a month pension and about $500000 in a 401K. My FRA is 66&8months. Which is 5 months from now. I moved some of my money into a pretax IRA into cash and left about $100000 in my Vanguard 401k. I had to draw on the cash annually to supplement my pension. My expenses are about $3000 a month. I now have a total of over $300000 in my IRA and 401k. I have been getting 4to 5% in CD’s there and in my after tax bank accounts. I have enough cash in the bank to cover my expenses until SS kicks in. My SS will be over $3100 per month. So I will have $4600 a month without touching my pre tax money. But I will continue to make withdrawals to prevent a tax bomb at 72.
My thoughts have been lately are that as long as the stock market remains strong, tap the 401k a little more to offset not taking ss. If the market tanks, tap the best performing segment of my 401k, i.e. bonds and begin ss.
A consideration for everyone who wants to leave something behind if possible. Luckily I am single but I have brothers , nieces/nephews and organizations that I wouldn’t mind leaving anything left to.
I took ss at 62 to not touch my portfolio. I didan analysis guesstemate, and my portfolio grows very nicely. Makes up for ss being less. The growth far exceded ss shortfall.. Tried to tell my sister the dr that, flew right over her head. Gave me sheet for 62 ss starting.
I am a single man with 401K and cash similar to your example. My situation is improved due to a federal pension and small VA disability on top of any SS. I will apply for SS in early 2025 (65) or 2026. It would be nice if Congress passes a bill to eliminate SS tax just as Trump promised. I will be just fine especially living abroad as I have done for 15 years of my life. 😊
I'd try like heck to drive my MAGI under $27k and go for a silver ACA plan with huge subsidies. at $36 K it's a big difference in deductable, costs , co pays etc. under $27K seems to be the sweet spot even if you have to live on costco samples to make ends meet.
There are other articles / analyses that show delaying SS yields better outcome and thus a better decision - as Drew says at the end, when to take SS is a very personal decision based on each individual circumstances.
My wife is seven years younger than me, should I draw down my 401k and wait till 70 years old so this would help my wife get more from social security when I die ?
The $2125 for age 70 you are using are in todays's dollars. If you delay between 62 and 70, and are using 8 years of inflation adjustment on the expense side, you will also need to adjust the age 70 amount up for inflation as well. This will make the amount look a little better.
@yourfinancialekg I have to agree with the concern here. How can you not apply the 8 years of COLAs to the age 70 benefit if you are comparing and applying the COLA (3% inflation in your example) to the 62 benefit? The numbers SSA gives you for the amounts at 62,67 and 70 are in today's dollars and they all adjust annually for the COLA. You would need to adjust your $2125 (age 70 benefit) to include 8 years of COLA to do a fair apples to apples comparison. Either don't do the adjustment for age 62 (scenario 2) also or maybe relabel your video to "Take Social Security at age 62 since they may not adjust the yearly COLAs between 62 and 70 if you delay" For that matter, why compute the COLAs after age 70 if you don't think they will be there between 62 and 70 (for those who delay). You tipped the balance in favor of 62 from what I see since the outcome, if I am not mistaken, is different. Adding in the 8 yrs COLA in scenario 1 changes the results you concluded with as it appears that taking benefits at age 70 is better when/if you get to about age 79-82 depending on the ROR
I noticed the same thing, and mentioned it in my own comment, before reading your comment and one from dgs8011, who said the same exact thing. You HAVE to account for it on both sides.
my fundamental question would be between 62 to 65 when medicare kicks in how is he going to pay for the medical premiums. Obamacare is not cheap and increases exponentially every year. My recommendation is at least until he hits 65, he should live overseas to keep his expenses low and decide between drawing at 62 or 70 and depending on the decision draw lesser money from 401K.
Thanks for the video. We will be facing the same decision in 8 years. Take at 62, or just pull from 401k, and our bridge fund in a HYSA. At 62, my wife's and I combined benefit will be $3093 a month. Our expenses we are expecting to be $5000 a month. If we wait until 65, our combined benefit will be $4180 a month. Empower software has us running out of 401k money at 80. We feel pretty good about that, and that's retiring at 60. We will be living debt free from 56 on with a paid for 300k house.
If a person retires before fra, and delays soc sec, and has 48 years of earnings, of which the top 35 are calculated, than will soc sec keep increasing MONTHLY to fra, and beyond to age 70? AND along with the COLAS? Or would it only increase with the COLAS?
Just asking because I don't know. The projection you ran shows $1200 at age 62 and $2125 at age 70. Wouldn't the $2125 amount be higher at age 70 because 8 years would have passed and there would likely have been Social Security increases during that time, or does the amount already allow for that? Again, just wondering. I realize the purpose of the video is about educating people on ways to maximize their assets in retirement. Thanks
YES! If you read the comments, I, and several others, have all also noticed this and pointed it out. Drew has replied to some of these comments... but his answer makes no sense to me. You HAVE to apply it to both sides.
In Scenario #1, using what I believe is an conservative average wage index of 3.5%, the monthly SS account should be $2798/mo, NOT $2125/mo. You should run the numbers again for Scenario #1
I don't put a COLA on SS until it is taken to be conservative since SS is running short of funds after 2033. A 21% decrease would be a monthly benefit of $2,312.
@@yourfinancialekg Although the Congressional Budget Office estimates that changes will have to be made by 2033 to prevent a shortfall, that’s a long time from now and there are many options for shoring up the system. I've attended not one, not two, but three different Social Security seminars over the past five or six months, held locally in nearby cities. Each speaker said the same thing regarding this... don't worry about it.
I'm missing something. If he retires at 62. He is drawing 1200 from SS. He needs 3000 per month or 36,000 per year. If he only takes out the interest made per year his 500,000 at 8% is 40,000. If he is drawing only the interest made and his 1200 per month that is 76,000. I realize he has to pay taxes. If he only draws out the interest plus his SS shouldn't the 500,000 last forever?
Assisted living is something that many seniors need. Then, they go into a nursing home. Federal average for medical bills throughout your retirement is $315,000 for a couple, so for a single guy like the one in the scenario, he can expect at least $157,500 of medical expenses. If he needs any sort of long-term care, that number goes way up, and he will needto use the principal. People so often underestimate the cost of medical for seniors. And no, Medicare does NOT provide long-term health care, and with his portfolio, he would never qualify for Medicaid (which does pay for long-term care).
Great video and exactly where I sit currently at 62 heading to 63 and wanting out ASAP. The one thing I don't see addressed clearly enough in any of these scenarios for retiring before age 65 is detailed info on the best affordable options for health care between losing employer benefits and eligibility for Medicare.
In this example, with a fairly low amount of savings, the right move is to take the social security early and conserve the savings. If there is a larger nest egg to work with, then you can take the hit to it for a few years to generate a higher social security payment later.
Here is a problem with your analysis. Taking SS at 62 may allow you to maintain the $3k plus inflation a month lifestyle two more years but when the money runs out in both scenarios the take SS at 62 guy is going to have an income that is behind the 70 income by 77%(1200 versus 2100) and coming at a time where your health and vitality are not great either so you really need to think about that.
Maybe, but you can also say that if the market has a 15-20% drop at the beginning of the "wait until 70" scenario, then he is going to draw down his assets a lot more than the "take at 62." Tons of different scenarios to consider, thanks for watching!
Think about old age and your health deteriorating. Think about not being able to fix the car, mow the grass, or clean the house. Now you have to pay someone to do those things. Did you low ball yourself on SS filing?
Many people don’t make to the age you describe. This has to be a MAJOR factor in any decision. It’s better to have money when your health and vitality is good, then when you no longer can do anything. I think it’s hard to figure the right answer for people because of the variables…
Drew, it looks like you applied COLA increases to the take it at 62 case but not on the take it at 70 case. The 2,125 is just the 124%, but it should have the 29% increase for 8 years of COLAs like you did for start SS at 62. That would give SS at 70 to be 2741 which would give a lower draw of 1203 from the portfolio which should last longer and lower withdraw rate than the start at 62. Still might want to take it early if you don't expect to live long enough. I don't get the 4,206 on the right side. I did not recalculate things but I think the SS at 70 lasts longer if the apply the COLA on it. Its a tough decision no matter what, most people don't like spending down assets.
@@yourfinancialekg I don't think its fair to apply COLA to take at 62 and not at 70. This implies the COLA does not occur if you delay benefits but they apply to both. Be conservative in investment returns but don't change the COLA rules. You give great advice but I just like SSA decisions to be based on correct information. Still the decision is not easy.
Either way he has a 25% chance of reaching the age of 90 once he reaches the age of 60. If he had waited until 70 for SS he would have substantially more monthy income at the time that he needs it most and when his expenses are highest. Likely his only option to stay afloat is a reverse mortgage which has it's own set of liabilities and issues. This isn't a good option for most people.
What if you are still paying your mortgage? Paying off my mortgage early had given us freedom to save that payment and I was able to retire and not be worried about where the money will come from to pay the mortgage. Another reason why I don’t listen to financial advisers, telling me not to pay off for tax reason and more money into their pocket!
$3,000.00 expenses a month does he eat, fix his car, fix his house,...? *sequence of return* ball park if 401k is under $1M start SS early if over $1.5M put off SS (given that you are spending less than $50K a year)
I won’t have this issue as I am hoping to retire at 67, I’m 64, and will be using both. I’m getting my house payed off and fixed before I stop working.🎉
Depends on marital status and amount you have in pretax. I have not taken ss. Retired at 63. My investments have more than made up for the 250K+ taken in pretax. At 70 my ss will be over 4k mo. 59% greater than FRA. 22% cola X 30.67% delay increase. Dividends and growth will provide RMDs. Good idea to spend down to save on taxes later.
Hello, I am confused, why did you not at the 3% on to the calculation of taking SS at 70, it should be at a minimum $2763 vs 2125, that changes everything. Please advise why this was not included
The other big factor is how long you live. I noticed you stopped at 82, and 81 to 82 is the average life expectancy. However, the longer you live the better it would have been for you to have taken SS at 70 to maximize your return at higher for longer. And you are correct the average ROI from the market is around 8% over a 25 to 30 average span; however, we have had 5-10 spans averaging 3-5%, and one would just hope they didn't have bad luck and timing and counting on accruing during one of those lower periods in time from 62-70. Basically to many what if's which makes it hard for anyone to be sure which is the simple best option, it's a gamble either way.
What happens if you postpone ssi withdrawals because you have a nice 401k and the government crooks idea to fix ssi problems is to go to needs based dispersions?
My expenses are pretty low that SS can cover all of my monthly bills and leave me a few hundred left even if I took it at 62. My plan was to live off SS and leave my investments to grow.....
You didn’t COLA adjust SS in the delayed case, that 2125 is without an adjustment, using the same adjustment you used in the take at 62 case would be 2742 month.
What happens if you take social security at 62, find out it is not enough and you go back to work and your Social Security payments are cut, you end up as a loser. If we have a good traditional 401K and can withdraw 4-6% starting at 62 and live off of that and keep your taxes low because you have no other income you can keep your taxes low. If you wait until your 71, you are in a higher tax rate. I consider social security a safety net so want it to be high. I might take out at full retirement age or delay for more money later.
We looked at the numbers and at 62 we will also have only around 500k in savings, BUT both of us being high earners and both of us being lucky enough to get pensions our combined retirement income will not only allow us to retire at 62, but the SS and payments should be enough to cover our expenses, leaving our savings for fun money and earning passive income. Seems like a no brainer to me.
at the end of the video you mentioned this gentleman’s optimal age to take social security was 63 - how is that determined ? i am currently in this exact situation right now of determining whether to draw from my retirement first or begin SS.
It might be different if your client had a little more in the account, say $750k, and a modest pension (about the same as his SS benefit). Then taxes might drive the outcome. Seems like the higher the income and larger the 401k the more taxes would figure in. Move/use some 401k money before taking SS. It would be an interesting analysis.
I agree with @sjvarney You added COLA to the age 62 SS but not the age 70 SS. At 70 the SS would be 2,616 a month so 5,892 less per year from the 401K.
"God's greatest gift outside of Jesus, is Compound Interest". I'm quoting you on this - love it! BTW, thanks for this video. Unfortunately, it added more questions, then definite answers for me, but good information nonetheless.
I don't under how the timing of taking SS affects the dollar amount for expenses. The expenses with inflation should be the same in the left and right columns. That will completely change the final numbers on the right. Taking your money early will give a later age before you run out of money. Am i missing something here or did you make a mistake in calculating expenses in the right scenario?
I’m not sure how it works in my situation, I had to go on Retirement Disability, I had to get SSDI, so my Retirement difference is $488. Per month… I have a my 401k is called Thrift savings plan. I have not touched that. I believe I would get a penalty. Is there a video to help me in my situation??? Thank You
My immeadiate familt members all died at ages of early to mid 70s. Most from cancer. Im 55 and just got cleared from colorectal cancer scare. 900k in 401 and not sure if ill make it to 70, let alone 80, 85. Going to retire at 55 and 7 months (maybe try and get a stress free pt 250/week job) drawing out 4700/mth for 3 years (includes hc), then 3500/mth for 3.5 years. Take ss at 62 at about 2400 gross//mth. Wife, 59, will take her ss at 62 with gross of 1700/mth with about 40-50k in a 401k. Hopefully this will get me into my mid 70s and anything left over plus home goes to her. Sound doable?
Yes, you can also look into tapping into your large 401K early to help bridge the gap between 55 and 60 using Rule 72(t) to avoid the 10% penalty. I'm 55 and just started doing this.
@nsj-ytp also, I would be using the 401k from 55 until death. My withdrawals would go down substantially after 3 to 4 years and even more when ss kicks in at 62. If I may ask how has it been or worked out for you. I do not have over a million in my 401k (yet)
You are welcome. Actually Drew compares the 401K rule of 55 and the IRA 72t well here: th-cam.com/video/SjvmUVhj6eU/w-d-xo.html . They both give you a way to avoid the 10% penalty on early distributions. I think if your company offers the rule of 401K Rule of 55 and you are happy with your investment options then its more flexible. If you prefer to roll over too, or need to draw from regular IRAs only then 72t is similar though you need to follow a consistent distribution amount, with the max based on a formular (online calculators available) and stick to that schedule and amount each yr you initially start with for at least 5yrs (if you are 55 now it seems you can distribute upto a max of 6.5% per yr). Its not as hard as it sounds though. One extra tax form to file each year (5329) but if you don't stick to the plan each year the 10% can (retroactively) come back and bite you. If you plan to reduce your withdrawals in those 5 yrs the 401K rule of 55 would be the way to go.
Nice video. Something I've often wondered about. But, the fellow in the scenario should be getting more than $1200/mo., at 62. I've never made more than $44K per year, and I'll be getting at least $1500/mo. Plus, SS COLA has increased at 2.6% per year, on average, over the last decade, which is almost an offset for your 3% inflation rate, so the dude should have even more disposable income. Finally, once Medicare kicks in at 65, he should be able to allow even more money to stay and appreciate/compound in his retirement account, as it should be cheaper than the cost of personal health insurance from 62-65.
He seemed to promote the fact that taking SS @ 62 will allow the 401K to last a couple years longer, but ignored the substantially larger, guaranteed SS income in the SS @ 70 scenario.
59% more in SS from FRA to age 70 for me. Retired at 63 spending more money than when working. Moved money to my IRA at market dips. 401K invested stable funds. Stocks have grown substantially. I have the same total in pretax as at 63. SS at 70. 30.667% x 22%COLA = 59% in less than four years for SS. For me, worth waiting...
First, always double check the math. Second, triple check the reasonableness of your assumptions. Now let me state that in this scenario I am still waiting until 70. My social security payment will be almost double and what if I live beyond 85 when I am out of money regardless? Also, this example ignored sequence of return risk. Another reason I take the almost guaranteed 8% plus annual COLA from SS. Meaning wait to 70
Also make sure you're getting advice from someone who doesnt have a vested interest in your 401k balance being high, ie. assets under management. Get more than one opinion on your plan.
What would happen with the numbers if you somehow stagger COLA on investment money? Or take 1 to 1.5% less? In my entire working career, my pay never kept up with inflation and I made it ok. Can you do a video where someone stays behind a little on investment inflation and see how much it adds to the longevity of their 401k/IRA?
I think the Social Security benefit amount at 70 is incorrect in the example. Based on the numbers in the example the SS benefit at full retirement age (67) is $1,713. At 70, it's 24% more, therefore $2125, if the retiree would be 70 years old TODAY. But the benefit is also subject to the inflation adjustment (COLA), therefore at 70 (8 years later, at 3% inflation), it would be $2,692! This reduces the expense gap from $1,819 to $1,252 and extends the point when the money runs out significantly.
YES! You and me and several others have all pointed this out! It changes EVERYTHING. (I come up with a monthly estimate of $2,745.07 at age 70. His $1,200 age-62 monthly benefit grew to $1,548... about 3.25%... so you have to apply that same percentage to the $2,125 benefit.)
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Laura Grace Abels is the licensed advisor I use and im just putting this out here because you asked. You can Just search the name. You’d find necessary details to work with to set up an appointment.
Thanks for sharing. I curiously searched for her full name and her website popped up immediately. I looked through her credentials and did my due diligence before contacting her.
How would you compare this with a scenario for a single guy who has a defined pension benefit (non-governmental)? Say $50k?
Please stop with the multiple bubble pops every time you put something up on the screen it's so annoying I can't listen to any more of your content
OMG, I am so glad that the algorithm tossed this video to me. I am 63 and just got laid off. I decided to retire and this exactly the scenarios I was going to sit with this afternoon and try to work out for myself. Absolutely a life saver.
I’m one of those Costco employees (for 24 years now) As I approach retirement (I’m 57) I’ve been blessed with the generosity of Costco and their “match” I understand that when a company matches their employees, it’s typically a percentage of what the employee puts in. Well, with Costco they put in a percentage of my annual income as a discretionary contribution in addition to their “match” So basically Costco after 20 year ( it’s a sliding percentage) is putting in 9% of my annual pay. It’s why I’ll retire at 64 ( which I selected) with almost 1 million in my 401k. ( I am an hourly employee, never been in management with Costco. They treat us RIGHT! I appreciate all of your videos and that you use “average Joes” income. So tired of seeing many on TH-cam the their clients have 4-5 million at 62. I’m good at math, I just deal with numbers all day and would rather you, the expert, point it out.
Thanks again and much peace to you, your family and channel!
Love Costco!! Pizza and raspberries are my Costco must haves!
Costco is one of the best companies as far of treating their employees right. Love Costco.
🎉🎉Make sure you roll over your 401k to an annuity. I just rolled over my aunt’s 401k she also worked at Costco and recently retired 🎉🎉
@@kauigirl808do not roll into annuity
@@yourfinancialekgsuper glad Costco takes care of their
People What I love about Costco
When SS greets me at 62 I’m going to embrace them wholeheartedly.
🖐️
@@yourfinancialekgI’m going to,celebrate for being able to open the door. At 78 years old you just start breaking even ! SMH
@@cclibre3832 I calculated my break even and it is 82. I probably won't make it that far.
Yes. Tomorrow is not promised.
@@cclibre3832 78 is the predicted average age of DEATH !
I have friends who cannot stand being alone as a younger person. I noticed that these friends come from large families. Im sure when they retire, they will continue to struggle for being alone. I’m the opposite from a small family and enjoy being alone with my thoughts. I can just go to my swing chair or hammock and swinging for hours and be at peace for being alone.
It depends on your objective.
Stability: If you want more guaranteed income, then delay taking social security. If you want more control of your income then take social security early.
Life Expectancy: If you think you'll live until 85+, delay taking social security. If you don't expect to live that long, collect social security early.
Great comment!
Nice
Nobody can guarantee return. Not Even the best profolio manager. If someone can guarantee 7% for me. I will give him or her than 1% if they think they can average 8% every year. Meaning even if the market is down for the next 5 years, they still need to give me the 7%. There is a reason many fund managers put money on bonds and US treasure bills as well because those are guarantee return.
Unless your goal is to maximize the income for your lower income spouse.
I don’t know about the conclusions on this video. Sure, you get 2 more years of living beyond your means but after that the pay cut is down to $1200 rather than $2500.
What was missing was the projection for what happens if he works another year or two. YOLO and all that, of course, and he’d be trading the best remaining years of life for $$, but it does not sound like this budget allows for vacations in Monte Carlo. A wise man would ask what he’s going to do with those two years. If it is watch cable ‘news’ while drunk on Miller all day every day, maybe working ain’t so bad. Fewer hangovers.
i appreciate you addressing an audience on a modest income. Every other retirement advice youtube video I have watched is for people retiring with one or two million in assets. Keep it up! It gives hope to us planning to retire with modest savings!
Glad it was helpful!
I aint got a house i rent, I figure cost of living. expense. I rent for peace of mind. we got 3 mill and wiffy still works 240k taxes and i dont touch my 401k or portfolio. she works for medical..
I turned 62 in August and will be getting my first social security check in 20 days and plan on investing a portion of it every month. I do not have any debt. I work one day a week and do not want to withdraw any money from my 401K unless it is necessary. I need some time to heal my mind and body, after putting in too many years at a physically demanding job!
How's it going so far?
@@lolatu8255 It is going well! I still haven't touched my 401K yet. I like to work and will continue to work at some job, just something I enjoy that won't ruin my health and maybe just part time.
I bought 250 shares of Costco two years ago and it's up 81%. Yeah, I love Costco.
HA HA. YES!!
Love how u explain things so simply… I taking SS , early .. because , if I die government doesn’t pay , ss.. my other investments can be , inherited to my kids
Thank you!
Exactly my thought!
It depends. If the market is overvalued then take it from the 401K. If it’s undervalued, keep the 401K in the market & look for other income sources.
I keep 500k plus in cds it is my nut. the rest i have never touched no matter what. has grown very nicely. I dont worry about markets.
If the market is overvalued - sell. If it's undervalued - buy. So how do I tell whether it's overvalued or undervalued???
Fancy words
@@philmarsh7723 We can't... we can only do that retrospectively.
Yes the balance at 72 of the 401k bucket is higher if you take SS early, but you are not bringing up RMD's which if you leave more in the 401k will bite you where you now are suddenly forced to take money out even if you didn't need it --> big tax implication.
Looks like he needed it thought. Rmds on that little is no concern
One of the best descriptions for taking/not taking SS I've seen! Good job!!
Wow, thanks!
I have two pensions, Social Security, and 401K withdrawals. I’m making more in retirement than when I was working. Use all the funds you can your hands on right now. NEVER DELAY!!!!!!
SWEEEET
We retired at 60 and will have to 2 pensions and SS as well and a healthy amount of pre-tax money. Not taking SS until much later and doing roth conversions now. If i don't I will pay alot more in taxes when RMDs kick in and one one of us passes away.
I also want to avoid IRMAA so that is another reason I'm doing Roth conversions before taking SS.
most do not get 2 pensions,, even one is rare now
Good for you! The terrible advice that you are giving here, telling people to “NEVER DELAY” , is that people have different situations. What is good for you may not be good for someone else.
People should consider their situation and make an educated decision about when to file!
Other important factors
(1) Health at time of retirement
(2) what, if any debts remain,
(3) 401-k Balance
I’m fortunate enough that I will receive a pension when I retire, I also have an IRA, as well as a 401-k that I can draw upon so drawing social security before age 67 won’t be necessary
If you can eliminate your debts before retirement, you health is reasonably good, and you have a substantial 401-k balance then rely upon those before drawing upon social security
Thanks for commenting!
Why? You offer advice with no explanation so I would be interested in your rationale for advising people to hold off on collecting SS. Even if I didn't need the SS check at 62 I would think that investing the money would be better than just not taking it until 67 or 70
Delaying Social Security benefits is the only guaranteed 8% growth rate I'm aware of.
You answered the retirement age question better than anyone else. Thanks
Great example of what to look at when deciding if you should take SS at 62. It's what I would call a breakeven number. Basically, does the return on your money make enough to cover your expenses, plus allow for reinvestment to stay ahead of inflation and grow your account. In this case, you only need 1800/mth, which is roughly 4.32% of 500k, if we assuming a 5% return then no. If we take the market average of 8%, then definitely yes. If we go a little conservative at 7%, then we are still at a decent yes. Especially if you add in the fact, you will get cola increases on the SS.
One big item worth noting, is in regards to taxes. If you are only pulling 21600 (1800x12) from your taxable account, you will only have 1900 of the 14400 (1200x12) SS taxable. So, your taxable income will be 23500, minus the standard deduction of 14600 (2024), which leaves you with 8900 in taxable income, so your taxes would be 890 dollars. If you are pulling the entire 3000 from your taxable accounts, your taxable income will be 36000, minus the standard deduction of 14600, which leaves you with 21400 in taxable income, so your taxes would be 2336 dollars (or 1446 dollars more than if you took SS). That's 120 dollars more in your pocket every month, which could be a couple of good meals every month or one good date night with the girlfriend.
Another item worth noting, is if you do have someone to leave your money to, if you don't take SS early, you are spending money they could inherit, for an income they cannot. If you haven't dealt with SS after someone dies, let me tell you it stops immediately. So if you did take it early, you are keeping an extra 1800 dollars a month in your account, 21600 dollars a year, 216000 after 10 years. That's a chunk of change.
Of course, if you have nothing or very little saved, you need to wait as long as possible to take SS.
Your analysis is way better than most "experts". However, everyone needs to look at the whole picture. Your example is quite similar to the situation I had and taking at 62 was a no-brainer. An elephant in the room nobody talks about is state taxes. I live in a high tax state and taking $ from my IRA (or 401K) is subject to state tax where SocSec is not.
Healthcare is a big expense that isn't factored in. My wife is 4 years younger than me. I'm delaying SS until I am 69 and she will be 65. Then, we can both be on Medicare. She is currently on Obamacare. We are living on my pension and savings right now.
Be careful with the medicare penalty if you don't sign up for it at 65. I had planned to wait till 70 to take SS, but found out last year that my federal health insurance retiree benefit doesn't count as "credible coverage", so have to sign up for Medicare at 65. Bullet dodged, penalty would have been huge for delaying till 70.
I ran the numbers based on what you had. It came out either way he would run out of money about the same age. If he could get 6 percent or Higher return, then he would be better.
The real issue is the average cost of living is around 3.412 percent for the last ten years. The average cola on SS is around 1.52 percent. That's where people run into trouble. You have to find a way around the difference.
A lot of people are moving out of the USA to other countries like Philippines about 400,000 Germany 400,000 plus other countries in Europe like Italy, Spain etc. Mexico is expected to be building a lot of homes for people like expats.
People are looking for a better place to retire and get more for their money.
Thank you for the video.
Thank you for the great comment!
If retiring at 62, Be sure to include ACA subsidies in your math equation until you qualify for Medicare.
I'll have a pension and access to a 401k and 457b when I retire at 60. My plan is to get a p/t job so I'd delay SS until the p/t job is done. I'll do pension, 401k, and p/t job first. When the p/t job ends, then I'll replace it with SS.
Great idea
Great idea depending on your state of residence - if it taxes SS payments. If not, and if either presidential candidate does what they promise and eliminate taxes on SS - take the SS instead of your 401k.
@@RedEyeC things change after someone is elected. They love the fact that most people have the memory of a goldfish. Gimmie your vote, than after elected, their promises never happen and people forget about it.
@@BR549_o7 - you're so right. I've been a registered voter since 1979 and it seems like an indefinite broken record skipping over and over...
@@RedEyeC MD doesn't tax SS. If I don't get a p/t job, then I'll take SS at 62. My wife is a high earner and won't be retiring until the year I turn 65. I need to keep my income low at age 63 and 64 to avoid IRMAA since it looks back 2 years at joint income. During those years, it will be a pension and a p/t job or a pension and SS.
Interesting, a few considerations: remember SS gets COLA increases every year and as we age our expenses tend to decrease since we are not doing much in our 70s and 80s compared to 50s and 60s
A thought... Why not, when you begin tapping your 401k, use a fixed percentage, say 4%. No inflation adjustment, the only adjustment comes from the market performance. This simple method protects your 401k during market downturns while paying more over time as the market does well. As the market usually overperforms all other investments, over time, the seems a solid strategy. The only hitch I can see is that you have to be ready to tighten your belt during downtimes, but don't we really have to do that anyway? Thoughts on my kiss principle.
I wish content like this was available when I was starting out. I retired this year at 60, forced out. At least I had managed to save and teach myself investing. My plan is to take social security when it makes my withdrawal rate 5 percent or less from my portfolio. I could never swing a house, life long renter, so that's a worry. I am also alone, no spouse or kids, which is a concern but I think things will work out. I try to be thankful for what I have, knowing it could always be worse. Life doesn't seem to get less scary as I get older.
Thanks for watching!
Drew! Fantastic Topic! I have been waiting for This!! 😊😊
Glad you enjoyed it!
Am I missing where the COLA is accounted for in scenario 1, where you delay till age 70? Wouldn't the 2125 SS income have grown at 3% too or at least 2%? The 2125 figure was quoted to him at age 62. So, for instance, at age 63 his projected SS at age 70 would be 2189 (if COLA is 3%) and would go up every year? He'd be bringing in at least 2637 a month by age 70, yes (again, at 3 percent, but for sure more than 2125)? My projected SS income at age 70 goes up every year. That makes your money go a bit further than what's presented. May not catch up to scenario 2, but still, the math seems off to me.
I was thinking the same thing.
I don't put a COLA on SS until it is claimed. Just me being conservative in my approach. After 2033 SS is going to have issues anyway so this is my way of preparing for that.
@yourfinancialekg Well, that is really putting your thumb on the scale in the comparison then.
The analysis is missing both COLA in scenario 1 (similar to the inflation rate), and the tax burden on SS. In the end scenario one should come out ahead.
@@yourfinancialekgHowever you figured COLA in scenario 2. To be fair you should use the same rule in scenario 1.
Thank you Drew. This one video made me subscribe to your channel. You explained something that none of the other retirement TH-camrs explain. And I watch a LOT of retirement videos. This helped me decide what path I'm gonna take. Thank you so much and I look forward to your upcoming videos.
Awesome, thank you!
Drew, thanks so much for this one! My situation is very similar to this example and even thought the numbers are a little different this has been such a help to me and has given me things to consider! Thanks!
Fantastic!
Honestly wish we had the choice whether to take SS or 401k. Most of us needs both to survive.
I’ve seen an analysis that argues for taking SS at 62 NOT NEEDING it to live on - just taking the SS money and putting it to work in the market.
Guess what - you come out ahead versus taking it out at any time later, because that 8% growth beats the increased income taking SS at any later year.
Thanks for this clear explanation - whether or not you need the SS money, it pays to take SS at 62. Really helpful and clear!
It doesn't pay to take it at age 62. This video is misleading. Drew doesn't include the eight years of annual COLAs in Scenario #1. Read some of these comments, including a lengthy comment by mean that explains it all.. Others have pointed it out as well. It changes everything.
Yes, if you can guarantee an 8% return during that specific period in time, in that specific window, 8% for each and every year, it will push back the break-even point... a bit. Good luck with that. Otherwise, it's better to DELAY drawing benefits for as long as you can... providing you do live to be in your early 80s.
Good video. My situation. Was similar. I retired at 63 with a $1400 a month pension and about $500000 in a 401K. My FRA is 66&8months. Which is 5 months from now. I moved some of my money into a pretax IRA into cash and left about $100000 in my Vanguard 401k. I had to draw on the cash annually to supplement my pension. My expenses are about $3000 a month. I now have a total of over $300000 in my IRA and 401k. I have been getting 4to 5% in CD’s there and in my after tax bank accounts. I have enough cash in the bank to cover my expenses until SS kicks in. My SS will be over $3100 per month. So I will have $4600 a month without touching my pre tax money. But I will continue to make withdrawals to prevent a tax bomb at 72.
My thoughts have been lately are that as long as the stock market remains strong, tap the 401k a little more to offset not taking ss. If the market tanks, tap the best performing segment of my 401k, i.e. bonds and begin ss.
Absolutely great video. You broke it down, explained it so well and made it very easy to understand and compare. Thank you.
Glad you enjoyed it!
He didn't include taxes. That is going to make a difference. Taking 401k distribution and SS in same year could make SS taxable
This really works best for people that can stay in a budget
True, budgets are important especially in retirement
The S & P 500, with dividends reinvested, makes between 10-10.8% over the long-haul. 🎉 Just trying to make sure everyone knows that.
I've been in mutual funds since 86. Lifetime average over 12% for me with low cost index funds. :-)
Simple SS ends upon death, 401K does not and can be pass to your family!
that's the true answer!
The example used was for a single person. I assumed no heirs.
If your single it does not matter.
A consideration for everyone who wants to leave something behind if possible. Luckily I am single but I have brothers , nieces/nephews and organizations that I wouldn’t mind leaving anything left to.
@@EightBallAnswers1 👍💯
I took ss at 62 to not touch my portfolio. I didan analysis guesstemate, and my portfolio grows very nicely. Makes up for ss being less. The growth far exceded ss shortfall.. Tried to tell my sister the dr that, flew right over her head. Gave me sheet for 62 ss starting.
I am a single man with 401K and cash similar to your example. My situation is improved due to a federal pension and small VA disability on top of any SS. I will apply for SS in early 2025 (65) or 2026. It would be nice if Congress passes a bill to eliminate SS tax just as Trump promised. I will be just fine especially living abroad as I have done for 15 years of my life. 😊
Thanks for sharing and your service 🇺🇸
I'd try like heck to drive my MAGI under $27k and go for a silver ACA plan with huge subsidies. at $36 K it's a big difference in deductable, costs , co pays etc. under $27K seems to be the sweet spot even if you have to live on costco samples to make ends meet.
Great idea
Preach Drew!! Pastor Drew putting out truth bombs.
🙏
There are other articles / analyses that show delaying SS yields better outcome and thus a better decision - as Drew says at the end, when to take SS is a very personal decision based on each individual circumstances.
My wife is seven years younger than me, should I draw down my 401k and wait till 70 years old so this would help my wife get more from social security when I die ?
The $2125 for age 70 you are using are in todays's dollars. If you delay between 62 and 70, and are using 8 years of inflation adjustment on the expense side, you will also need to adjust the age 70 amount up for inflation as well. This will make the amount look a little better.
I noticed that too. He applied COLA to one example of social security but not the other.
I don't put a COLA on SS until it is taken to be conservative since SS is running short of funds after 2033.
@yourfinancialekg I have to agree with the concern here. How can you not apply the 8 years of COLAs to the age 70 benefit if you are comparing and applying the COLA (3% inflation in your example) to the 62 benefit? The numbers SSA gives you for the amounts at 62,67 and 70 are in today's dollars and they all adjust annually for the COLA. You would need to adjust your $2125 (age 70 benefit) to include 8 years of COLA to do a fair apples to apples comparison. Either don't do the adjustment for age 62 (scenario 2) also or maybe relabel your video to "Take Social Security at age 62 since they may not adjust the yearly COLAs between 62 and 70 if you delay" For that matter, why compute the COLAs after age 70 if you don't think they will be there between 62 and 70 (for those who delay). You tipped the balance in favor of 62 from what I see since the outcome, if I am not mistaken, is different. Adding in the 8 yrs COLA in scenario 1 changes the results you concluded with as it appears that taking benefits at age 70 is better when/if you get to about age 79-82 depending on the ROR
please rerun the scenario using the COLA on both sides
I noticed the same thing, and mentioned it in my own comment, before reading your comment and one from dgs8011, who said the same exact thing. You HAVE to account for it on both sides.
my fundamental question would be between 62 to 65 when medicare kicks in how is he going to pay for the medical premiums. Obamacare is not cheap and increases exponentially every year. My recommendation is at least until he hits 65, he should live overseas to keep his expenses low and decide between drawing at 62 or 70 and depending on the decision draw lesser money from 401K.
Just subscribed! Thank you for this real life what if analysis on taking SS early vs delaying, Drew!
Thank you!
Thanks for the video. We will be facing the same decision in 8 years. Take at 62, or just pull from 401k, and our bridge fund in a HYSA. At 62, my wife's and I combined benefit will be $3093 a month. Our expenses we are expecting to be $5000 a month. If we wait until 65, our combined benefit will be $4180 a month. Empower software has us running out of 401k money at 80. We feel pretty good about that, and that's retiring at 60. We will be living debt free from 56 on with a paid for 300k house.
Thanks for sharing!
If a person retires before fra, and delays soc sec, and has 48 years of earnings, of which the top 35 are calculated, than will soc sec keep increasing MONTHLY to fra, and beyond to age 70? AND along with the COLAS? Or would it only increase with the COLAS?
COLA's
Would we need to worry about RMD's ? Or are his 401K withdrawals higher than expected RMD's?
RMD's would be factored into the payout
Just asking because I don't know. The projection you ran shows $1200 at age 62 and $2125 at age 70. Wouldn't the $2125 amount be higher at age 70 because 8 years would have passed and there would likely have been Social Security increases during that time, or does the amount already allow for that? Again, just wondering. I realize the purpose of the video is about educating people on ways to maximize their assets in retirement. Thanks
YES! If you read the comments, I, and several others, have all also noticed this and pointed it out.
Drew has replied to some of these comments... but his answer makes no sense to me. You HAVE to apply it to both sides.
In Scenario #1, using what I believe is an conservative average wage index of 3.5%, the monthly SS account should be $2798/mo, NOT $2125/mo. You should run the numbers again for Scenario #1
I don't put a COLA on SS until it is taken to be conservative since SS is running short of funds after 2033. A 21% decrease would be a monthly benefit of $2,312.
@@yourfinancialekg Where is the 21% from?
Sorry, Wage Index should only be used up to 60yo...then COLA...
@@yourfinancialekg Although the Congressional Budget Office estimates that changes will have to be made by 2033 to prevent a shortfall, that’s a long time from now and there are many options for shoring up the system. I've attended not one, not two, but three different Social Security seminars over the past five or six months, held locally in nearby cities. Each speaker said the same thing regarding this... don't worry about it.
Good work. I noticed this too, and as I'm reading these comments, others have as well. It changes EVERYTHING!
I'm missing something. If he retires at 62. He is drawing 1200 from SS. He needs 3000 per month or 36,000 per year. If he only takes out the interest made per year his 500,000 at 8% is 40,000.
If he is drawing only the interest made and his 1200 per month that is 76,000. I realize he has to pay taxes. If he only draws out the interest plus his SS shouldn't the 500,000 last forever?
Assisted living is something that many seniors need. Then, they go into a nursing home. Federal average for medical bills throughout your retirement is $315,000 for a couple, so for a single guy like the one in the scenario, he can expect at least $157,500 of medical expenses. If he needs any sort of long-term care, that number goes way up, and he will needto use the principal. People so often underestimate the cost of medical for seniors. And no, Medicare does NOT provide long-term health care, and with his portfolio, he would never qualify for Medicaid (which does pay for long-term care).
Thanks Drew. I appreciate your work.
Very welcome, thanks for watching Jim!
Great video and exactly where I sit currently at 62 heading to 63 and wanting out ASAP. The one thing I don't see addressed clearly enough in any of these scenarios for retiring before age 65 is detailed info on the best affordable options for health care between losing employer benefits and eligibility for Medicare.
In this example, with a fairly low amount of savings, the right move is to take the social security early and conserve the savings. If there is a larger nest egg to work with, then you can take the hit to it for a few years to generate a higher social security payment later.
Here is a problem with your analysis. Taking SS at 62 may allow you to maintain the $3k plus inflation a month lifestyle two more years but when the money runs out in both scenarios the take SS at 62 guy is going to have an income that is behind the 70 income by 77%(1200 versus 2100) and coming at a time where your health and vitality are not great either so you really need to think about that.
Maybe, but you can also say that if the market has a 15-20% drop at the beginning of the "wait until 70" scenario, then he is going to draw down his assets a lot more than the "take at 62." Tons of different scenarios to consider, thanks for watching!
took mine at 62 and never looked back,, tomorrow is not promised,, if you wait you may not be healthly enough to enjoy retirement
Think about old age and your health deteriorating. Think about not being able to fix the car, mow the grass, or clean the house. Now you have to pay someone to do those things.
Did you low ball yourself on SS filing?
@@johnnyretiresno i am 67 currently and planning on waiting until 70 for the reasons I say above. But I am still working also.
Many people don’t make to the age you describe. This has to be a MAJOR factor in any decision. It’s better to have money when your health and vitality is good, then when you no longer can do anything. I think it’s hard to figure the right answer for people because of the variables…
Bravo! I LOVE This example! I am That guy! Almost exactly My Numbers! Usual example are so high I just thumb down and move on!
Boom!
I gave a thumbs down to this comment because my numbers are different.
Drew, it looks like you applied COLA increases to the take it at 62 case but not on the take it at 70 case. The 2,125 is just the 124%, but it should have the 29% increase for 8 years of COLAs like you did for start SS at 62. That would give SS at 70 to be 2741 which would give a lower draw of 1203 from the portfolio which should last longer and lower withdraw rate than the start at 62. Still might want to take it early if you don't expect to live long enough. I don't get the 4,206 on the right side. I did not recalculate things but I think the SS at 70 lasts longer if the apply the COLA on it. Its a tough decision no matter what, most people don't like spending down assets.
I don't put a COLA on SS until it is taken to be conservative since SS is running short of funds after 2033.
@@yourfinancialekg I don't think its fair to apply COLA to take at 62 and not at 70. This implies the COLA does not occur if you delay benefits but they apply to both. Be conservative in investment returns but don't change the COLA rules. You give great advice but I just like SSA decisions to be based on correct information. Still the decision is not easy.
Either way he has a 25% chance of reaching the age of 90 once he reaches the age of 60. If he had waited until 70 for SS he would have substantially more monthy income at the time that he needs it most and when his expenses are highest. Likely his only option to stay afloat is a reverse mortgage which has it's own set of liabilities and issues. This isn't a good option for most people.
What if you are still paying your mortgage? Paying off my mortgage early had given us freedom to save that payment and I was able to retire and not be worried about where the money will come from to pay the mortgage. Another reason why I don’t listen to financial advisers, telling me not to pay off for tax reason and more money into their pocket!
$3,000.00 expenses a month does he eat, fix his car, fix his house,...?
*sequence of return*
ball park if 401k is under $1M start SS early if over $1.5M put off SS (given that you are spending less than $50K a year)
IMO, It depends on how much you have in tax deferred accounts. RMD’s are a big concern. I’ll probably not delay until 67, but may to 65.
I won’t have this issue as I am hoping to retire at 67, I’m 64, and will be using both. I’m getting my house payed off and fixed before I stop working.🎉
Depends on marital status and amount you have in pretax. I have not taken ss. Retired at 63. My investments have more than made up for the 250K+ taken in pretax. At 70 my ss will be over 4k mo. 59% greater than FRA. 22% cola X 30.67% delay increase. Dividends and growth will provide RMDs. Good idea to spend down to save on taxes later.
Hello,
I am confused, why did you not at the 3% on to the calculation of taking SS at 70, it should be at a minimum $2763 vs 2125, that changes everything. Please advise why this was not included
That is just me being conservative and understanding that SS will get a haircut after 2033
The other big factor is how long you live. I noticed you stopped at 82, and 81 to 82 is the average life expectancy. However, the longer you live the better it would have been for you to have taken SS at 70 to maximize your return at higher for longer. And you are correct the average ROI from the market is around 8% over a 25 to 30 average span; however, we have had 5-10 spans averaging 3-5%, and one would just hope they didn't have bad luck and timing and counting on accruing during one of those lower periods in time from 62-70. Basically to many what if's which makes it hard for anyone to be sure which is the simple best option, it's a gamble either way.
Thanks for sharing, great comment!
What happens if you postpone ssi withdrawals because you have a nice 401k and the government crooks idea to fix ssi problems is to go to needs based dispersions?
I'm 68 and will work full time till I'm 70 and will claim SS then. Playing catchup on my 401K now.
You can do it!
My expenses are pretty low that SS can cover all of my monthly bills and leave me a few hundred left even if I took it at 62. My plan was to live off SS and leave my investments to grow.....
Awesome!
If you dont have heirs, or dont wish to give it to anybody by all means use it early to boost SS.
Well, also if he had a physically demanding job, that might be another factor to take it early…
Yes!
You didn’t COLA adjust SS in the delayed case, that 2125 is without an adjustment, using the same adjustment you used in the take at 62 case would be 2742 month.
What happens if you take social security at 62, find out it is not enough and you go back to work and your Social Security payments are cut, you end up as a loser. If we have a good traditional 401K and can withdraw 4-6% starting at 62 and live off of that and keep your taxes low because you have no other income you can keep your taxes low. If you wait until your 71, you are in a higher tax rate. I consider social security a safety net so want it to be high. I might take out at full retirement age or delay for more money later.
I think that after 67 years old .I will start withdrawing 401k .Hold SS until 70 years old ....Why to reduce RMD .
Good idea 💡
We looked at the numbers and at 62 we will also have only around 500k in savings, BUT both of us being high earners and both of us being lucky enough to get pensions our combined retirement income will not only allow us to retire at 62, but the SS and payments should be enough to cover our expenses, leaving our savings for fun money and earning passive income. Seems like a no brainer to me.
at the end of the video you mentioned this gentleman’s optimal age to take social security was 63 - how is that determined ? i am currently in this exact situation right now of determining whether to draw from my retirement first or begin SS.
We use a Social Security optimization tool plus what the EKG data tells us. Normally its a full process. Does that help?
It might be different if your client had a little more in the account, say $750k, and a modest pension (about the same as his SS benefit). Then taxes might drive the outcome. Seems like the higher the income and larger the 401k the more taxes would figure in. Move/use some 401k money before taking SS. It would be an interesting analysis.
Oh yeah! Thanks for watching
I see that you added inflation to the amount needed per month. But you did not adjust SS for cola adjustments. Does this change the outcome?
I don't put a COLA on SS until it is taken to be conservative since SS is running short of funds after 2033.
Comparing apples and oranges. The higher inflation is, the more valuable SS is compared to investments. 5- 8% + COLA
I agree with @sjvarney
You added COLA to the age 62 SS but not the age 70 SS. At 70 the SS would be 2,616 a month so 5,892 less per year from the 401K.
"God's greatest gift outside of Jesus, is Compound Interest". I'm quoting you on this - love it! BTW, thanks for this video. Unfortunately, it added more questions, then definite answers for me, but good information nonetheless.
Sorry about the questions, but happy to help!
And, evidently, raspberries are #3.
“Jesus saves, but Moses pays interest” is how I’ve heard it 😊
I don't under how the timing of taking SS affects the dollar amount for expenses. The expenses with inflation should be the same in the left and right columns. That will completely change the final numbers on the right. Taking your money early will give a later age before you run out of money. Am i missing something here or did you make a mistake in calculating expenses in the right scenario?
Wow you are the best!!
Wow, thanks!
If you don’t have lot of income and don’t need to pay tax. Just consider the break even age
Good point
I’m not sure how it works in my situation, I had to go on Retirement Disability, I had to get SSDI, so my Retirement difference is $488. Per month… I have a my 401k is called Thrift savings plan. I have not touched that. I believe I would get a penalty. Is there a video to help me in my situation??? Thank You
Seems this is missing health care. Need to cover that from 62 to 65 in the first scenario
This is just a broad overview. HC is something we would for sure need to consider!! Thanks for commenting!
It really depends on how long you will live as well
Absolutely, what if you die before you even start drawing. What a waste working all those years paying in and never get to draw the first check.
Exactly!
@@timgoodin42053A lot of people think they will live forever. What a waste.
My immeadiate familt members all died at ages of early to mid 70s. Most from cancer. Im 55 and just got cleared from colorectal cancer scare. 900k in 401 and not sure if ill make it to 70, let alone 80, 85. Going to retire at 55 and 7 months (maybe try and get a stress free pt 250/week job) drawing out 4700/mth for 3 years (includes hc), then 3500/mth for 3.5 years. Take ss at 62 at about 2400 gross//mth. Wife, 59, will take her ss at 62 with gross of 1700/mth with about 40-50k in a 401k. Hopefully this will get me into my mid 70s and anything left over plus home goes to her. Sound doable?
Yes, you can also look into tapping into your large 401K early to help bridge the gap between 55 and 60 using Rule 72(t) to avoid the 10% penalty. I'm 55 and just started doing this.
@@nsj-ytp THANK YOU for replying. Could you tell me about your experience? I will look up the rule. Thank you again
@nsj-ytp also, I would be using the 401k from 55 until death. My withdrawals would go down substantially after 3 to 4 years and even more when ss kicks in at 62. If I may ask how has it been or worked out for you. I do not have over a million in my 401k (yet)
You are welcome. Actually Drew compares the 401K rule of 55 and the IRA 72t well here: th-cam.com/video/SjvmUVhj6eU/w-d-xo.html . They both give you a way to avoid the 10% penalty on early distributions. I think if your company offers the rule of 401K Rule of 55 and you are happy with your investment options then its more flexible. If you prefer to roll over too, or need to draw from regular IRAs only then 72t is similar though you need to follow a consistent distribution amount, with the max based on a formular (online calculators available) and stick to that schedule and amount each yr you initially start with for at least 5yrs (if you are 55 now it seems you can distribute upto a max of 6.5% per yr). Its not as hard as it sounds though. One extra tax form to file each year (5329) but if you don't stick to the plan each year the 10% can (retroactively) come back and bite you. If you plan to reduce your withdrawals in those 5 yrs the 401K rule of 55 would be the way to go.
Nice video. Something I've often wondered about. But, the fellow in the scenario should be getting more than $1200/mo., at 62. I've never made more than $44K per year, and I'll be getting at least $1500/mo. Plus, SS COLA has increased at 2.6% per year, on average, over the last decade, which is almost an offset for your 3% inflation rate, so the dude should have even more disposable income. Finally, once Medicare kicks in at 65, he should be able to allow even more money to stay and appreciate/compound in his retirement account, as it should be cheaper than the cost of personal health insurance from 62-65.
12,000 a month in social security payments, is that possible?
Year not month
@@yourfinancialekg1:04
Was 1,200, he made a mistake
Can you use a better whiteboard, a bigger one? And maybe a red marker, so it's easier to see.Thank you
Yes I can
He seemed to promote the fact that taking SS @ 62 will allow the 401K to last a couple years longer, but ignored the substantially larger, guaranteed SS income in the SS @ 70 scenario.
59% more in SS from FRA to age 70 for me. Retired at 63 spending more money than when working. Moved money to my IRA at market dips. 401K invested stable funds. Stocks have grown substantially. I have the same total in pretax as at 63. SS at 70. 30.667% x 22%COLA = 59% in less than four years for SS. For me, worth waiting...
Great!
Doesn't he have to pay his monthly Medicare vig after age 65?
Yes sir!
First, always double check the math. Second, triple check the reasonableness of your assumptions. Now let me state that in this scenario I am still waiting until 70. My social security payment will be almost double and what if I live beyond 85 when I am out of money regardless? Also, this example ignored sequence of return risk. Another reason I take the almost guaranteed 8% plus annual COLA from SS. Meaning wait to 70
Great point!
Why is "FRA" pegged at 67, rather than 70 (which is the way "full" is normally defined)?
Full Retirement Age is defined as 67 by SSA for those born after 1960
Also make sure you're getting advice from someone who doesnt have a vested interest in your 401k balance being high, ie. assets under management. Get more than one opinion on your plan.
Bingo
What would happen with the numbers if you somehow stagger COLA on investment money? Or take 1 to 1.5% less? In my entire working career, my pay never kept up with inflation and I made it ok. Can you do a video where someone stays behind a little on investment inflation and see how much it adds to the longevity of their 401k/IRA?
How much do you get from social security at age 62
70% of FRA
I think the Social Security benefit amount at 70 is incorrect in the example.
Based on the numbers in the example the SS benefit at full retirement age (67) is $1,713. At 70, it's 24% more, therefore $2125, if the retiree would be 70 years old TODAY. But the benefit is also subject to the inflation adjustment (COLA), therefore at 70 (8 years later, at 3% inflation), it would be $2,692! This reduces the expense gap from $1,819 to $1,252 and extends the point when the money runs out significantly.
YES! You and me and several others have all pointed this out! It changes EVERYTHING.
(I come up with a monthly estimate of $2,745.07 at age 70. His $1,200 age-62 monthly benefit grew to $1,548... about 3.25%... so you have to apply that same percentage to the $2,125 benefit.)