The Early Retirement Years Strategy

Ha, so about a year ago I started this thread with a 3 year horizon.

3 Months after, my spouse was let go from SXM with a nice severance package and COBRA support through November '24.
Which just happens to be when she reached full retirement age.
#Bamm, SS is turned on. We still have some of the severance package left 🙂 .
In April of this year she goes to Medicare as the primary (I can't remember why April)
She is also an AT&T retiree, so there is medical/dental/vision supplemental available at a very reduced rate.

We (son and myself) get a cobra extension until March 2026 (3 years after Medicare eligible primary - yeah I know,
how would one know all these things since we don't even know the questions)
It's all in the giant paper book they send ya!

I'm 1 year from SS, 4 years from Medicare - where I can jump on Sue's retiree plan for supplemental.
Yes, i'm going to start collecting at 62, cause I can either use my savings to fund the gap, or continue to earn by using the SS -
with an 8 year or so run rate to catch-up with higher SS payments by taking it early - hedging against not making it that long?

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Looking for some current income, rather than capital gain, with post-tax investments. Not too concerned about preservation of capital.

I was heavy in VWEAX - a multi-billion $$ junk bond fund returning 6.5% - there are some competitors ie MHCAX.
These are monster funds - money flows in/out without concern of who is buying or selling,
pricing is per NAV (@MadisonDan, is this right?)

I started looking at closed-end funds - someone has to be selling shares to get into the fund - the fund may buy/sell their own shares too.
They publish the amount owned by institutional investors and the amount owned by the fund managers.
The managers are a known quantity - with their tenure and resume available.
Their area of expertise/investment is in their thesis statement (probably not right term?)
Distribution track record is established.
Size of the investments being managed is in the $200-500MM range.
They typically pay in the 10% range - and are the complete opposite of tax free funds.
The distributions are considered income (not earned income, just income - this is important with SS)
I put some in my IRA also - not a lot, to complement VWEAX.

I've picked 5 funds with different markets.
- although they are all financial services (lending rate risk,) some are looking at asset backed loans, junk bonds, emerging co, mid-size co loans, pure real estate, etc.
Also picked some different size management companies, Big ones would be Blackrock and Pimco.
There are plenty of small ones to peruse.

Hopefully i'll be writing big quarterly checks to the government.......(they won't be that big.)

Will report back in a couple quarters....
 
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Following. I think my wife finally realized that the I’m suddenly retired, not suddenly unemployed.

I can start collecting SS this year. Still undecided. She’s extremely risk adverse and trusts the CFP more than I do. They currently only manage about 25% of our investments but are always pushing for more.

I think they try to scare her based on the language they use when we speak. Just yesterday they were trying to explain to her we’d spend XxX million dollars to for the next 30 years. They neglected to explain to her that with our current investments we’d have at least twice that amount even at 5% with a 3% cost of living adjustment.

She’s only focused on the possibility of loss and ignores the fact the stock market has gone up forever.

She plans on working two more years, till 60. Our big unknown is healthcare until we reach 65. My biggest issue right now is the fact that I’m riding and skiing while she’s WFH. Typing this from the bar at Blue Mountain.
 
Bike N Gear said:
Following. I think my wife finally realized that the I’m suddenly retired, not suddenly unemployed.

I can start collecting SS this year. Still undecided. She’s extremely risk adverse and trusts the CFP more than I do. They currently only manage about 25% of our investments but are always pushing for more.

I think they try to scare her based on the language they use when we speak. Just yesterday they were trying to explain to her we’d spend XxX million dollars to for the next 30 years. They neglected to explain to her that with our current investments we’d have at least twice that amount even at 5% with a 3% cost of living adjustment.

She’s only focused on the possibility of loss and ignores the fact the stock market has gone up forever.

She plans on working two more years, till 60. Our big unknown is healthcare until we reach 65. My biggest issue right now is the fact that I’m riding and skiing while she’s WFH. Typing this from the bar at Blue Mountain.
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I'm looking at healthcare with a bigger than normal max out-of-pocket.
How many of these events are possible? if the insurance is under $2k per month with a max OOP of $20K/yr, you are only insuring the catastrophic.
I'm good with that. $1,000 for stitches instead of $50? oh well. if a car clips me, i'm not going to buying $20k worth of bikes in the next year,
so there is that savings. and i'm not insuring my non-existent income from working.
although I may claim state disability, since I paid into it for 40 years.
 
Bike N Gear said:
Following. I think my wife finally realized that the I’m suddenly retired, not suddenly unemployed.

I can start collecting SS this year. Still undecided. She’s extremely risk adverse and trusts the CFP more than I do. They currently only manage about 25% of our investments but are always pushing for more.

I think they try to scare her based on the language they use when we speak. Just yesterday they were trying to explain to her we’d spend XxX million dollars to for the next 30 years. They neglected to explain to her that with our current investments we’d have at least twice that amount even at 5% with a 3% cost of living adjustment.

She’s only focused on the possibility of loss and ignores the fact the stock market has gone up forever.

She plans on working two more years, till 60. Our big unknown is healthcare until we reach 65. My biggest issue right now is the fact that I’m riding and skiing while she’s WFH. Typing this from the bar at Blue Mountain.
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I still like the @Fire Lord Jim approach of holding off on SS as long as possible. If you're truly risk averse it's probably the most secure monthly payment you'll get, so hold off while you can and get the defined larger payment later.
 
Bike N Gear said:
Following. I think my wife finally realized that the I’m suddenly retired, not suddenly unemployed.

I can start collecting SS this year. Still undecided. She’s extremely risk adverse and trusts the CFP more than I do. They currently only manage about 25% of our investments but are always pushing for more.

I think they try to scare her based on the language they use when we speak. Just yesterday they were trying to explain to her we’d spend XxX million dollars to for the next 30 years. They neglected to explain to her that with our current investments we’d have at least twice that amount even at 5% with a 3% cost of living adjustment.

She’s only focused on the possibility of loss and ignores the fact the stock market has gone up forever.

She plans on working two more years, till 60. Our big unknown is healthcare until we reach 65. My biggest issue right now is the fact that I’m riding and skiing while she’s WFH. Typing this from the bar at Blue Mountain.
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Having looked at the arguments for/against, I plan to take at 62. Your question of health care between 62-65 is a big one. Of course, my wife is a Canadian citizen so that may be our play. Free health care option. Down side? It's colder there. But you only need to live there like 6 months and a day, so we could split time, which is likely what we'll do.
 
Santapez said:
I still like the @Fire Lord Jim approach of holding off on SS as long as possible. If you're truly risk averse it's probably the most secure monthly payment you'll get, so hold off while you can and get the defined larger payment later.
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She's risk averse. Not me. 5% return would let us live like we have. But, I'd be totally comfortable pushing for more. We don't need the SS now, but given my cancer history, who knows how long I'll be around. Not that anyone has any guarantees.
 
Norm said:
Having looked at the arguments for/against, I plan to take at 62. Your question of health care between 62-65 is a big one. Of course, my wife is a Canadian citizen so that may be our play. Free health care option. Down side? It's colder there. But you only need to live there like 6 months and a day, so we could split time, which is likely what we'll do.
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I'll be 78 when it comes even.
Then it will come about $20k diff per year.
Isn't enough to convince me
 
Here is an excerpted post on claiming SS from 2022:

"One book that I can recommend to you all (except old guys, who may fall asleep reading it and never wake up) is Wade D. Pfau’s “Retirement Planning Guidebook,” Chapter Six on SS is 36 pages long. Page 179 in the paperback edition begins his consideration of delaying claiming SS benefits until age 70 by comparing the decision to an inflation protected annuity. This seems better than analyzing the claiming decision as insurance or whatever @SLIK RICK is flogging. It is compelling reading. Some of the concepts he writes about are discussed in this brief article:

Pfau article

He suggests using software including this free calculator, to help make these potentially important decisions. For example:

FREE calculator

Generally speaking, Dr. Pfau advocates informed decision making, as opposed to just winging it by relying on advice from a MTB forum. A good book on SS is Laurence Kotlikoff’s evokingly titled: “Get What’s Yours.” He has sold a lot of books on this topic and updates this one each time the SS laws change. Both Larry and Wade have great senses of humor, though they don’t display them too often."

A few things to consider when you make this important decision are your general overall health, the ages at which your parents died, and your wife's age if she is not the primary earner (survivor's benefit.) I consider the math (8% benefit growth for you and surviving spouse compounded for eight years) in Pfau's Chapter 6 on SS to be absolutely compelling, but what would I know.
 
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Norm said:
Yeah. The biggest argument is kinda that you’ll live your best retirement years just after 62. At 78 I’ll be shitting myself and throwing rocks at kids. Those are cheap hobbies. I think.
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There is a penalty if collecting and still working after a certain earnings level at age 62 through full retirement age. It is significant.
The level isn't very high. I won't make it.
I've a deferred pay plan here. 😉

As Tom says, do the math. I'll check out the reading and see what I missed.
Got 10 months to think about it.

The calculator says I should start at 62.
My wife should stop and go back to work.
I made the last part up about going back to work.

What is driving that is she is only a few years away from 70 and if she goes first, I get her benefit.
 
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Patrick said:
There is a penalty if collecting and still working after a certain earnings level at age 62 through full retirement age. It is significant. It level isn't very high. I won't make it.

As Tom says, do the math. I'll check out the reading and see what I missed.
Got 10 months to think about it.
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Just had a long overdue discussion with a retirement professional. Looks like I might be joining you on this journey. 👍
 
I doubt anyone is doing the breakeven analysis properly. Most are computing breakeven in a vacuum: on a gross, not net basis. Claiming Social Security before age 70 can use up your lower tax brackets. It can subject the rest of your income to tax at higher rates. Computing it on a net basis will move the breakeven closer.

I have strategic uses for those low tax brackets each year: Roth conversions. Claiming Social Security while working, as Patrick points out, has a serious penalty. I admit that when I turned age 62, I felt the powerful pull of "free money now". But the payment at age 70 is nearly twice the age 62 payment. I'm aligned with Norm that the best remaining years as the nearest ones. I will enjoy these nearest years more knowing that at age 90 my monthly check will be nearly twice the size.
 
Fire Lord Jim said:
I doubt anyone is doing the breakeven analysis properly. Most are computing breakeven in a vacuum: on a gross, not net basis. Claiming Social Security before age 70 can use up your lower tax brackets. It can subject the rest of your income to tax at higher rates. Computing it on a net basis will move the breakeven closer.

I have strategic uses for those low tax brackets each year: Roth conversions. Claiming Social Security while working, as Patrick points out, has a serious penalty. I admit that when I turned age 62, I felt the powerful pull of "free money now". But the payment at age 70 is nearly twice the age 62 payment. I'm aligned with Norm that the best remaining years as the nearest ones. I will enjoy these nearest years more knowing that at age 90 my monthly check will be nearly twice the size.
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My main goal is to do Roth conversions and staying in my current tax bracket once I retire. There are so many other variables, options, personal preference and situations at play here that you just have to run the numbers through several different possible scenarios and I fear it'll get to the point where all the stress of trying to find the best way to go at the time is even worth the effort. When retired you're supposed to enjoy and relax, not stress and worry. I'm still a couple of years away from my desired retirement date so tax laws still can change. Bottom line here is tax avoidance or minimizing.
 
Since tax brackets are incremental, breaking the next level by a bunch doesn't change the realized rate that much.
esp in the 22/24 zone.

Looking at conversions - I see I can convert the money in the IRA to a Roth and pay the tax bill with money on-hand.
This is what happens when wealthy people write the tax laws....

So say I had $100k in an IRA, I can convert that $100K to a Roth, have a that grow tax free forever, and pay the tax bill with post tax money -
vs if I took money out of the IRA, it would be taxed on the way out. So say $100 would become $80. which could then grow taxed (say cap gains rate)
what a coup.

Is that how you read it @Fire Lord Jim ? @tonyride ?
 
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