That’s not bad at all, especially if mortgage, car loans, student loans are paid off.
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Median household income for people over 65 is about $40k. Its around 50/50 mix of singles and 2 people households. (according to Census info)
So yeah $54k for the 2 person households sounds about right.
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Also … 1/2 of people over 65 own their homes outright. That makes it a lot easier to “get by” on $1-3k a month.
~1/4 rent and 1/4 own homes with mortgages. Those that own homes with mortgages have payments in the $700-900 range median.
sources:
https://www.census.gov/housing/hvs/files/qtr217/tab7.xlsx
https://www.census.gov/programs-surveys/ahs/data/interactive/ahstablecreator.html
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Yeah. For these types of income-based studies to make sense, they ought to include imputed rent in income.
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My folks live decently well in California on a total of $2,000 a month in SS and RMD’s from the IRA. Having a paid off house and car, Proposition 13 to hold property values at the 1989 purchase price plus 2% inflation a year, etc. helps. There’s a pile of money in other accounts that they touch to go on trips, home remodeling, and other stuff, but all customary needs are met by SS, and I suspect this is the case for many other elderly folks. To determine how much you “need” in retirement you really need to do zero based budgeting.
“Social Security Uncertainty”… What an ironic grouping of words considering the government branded it as Social Security to make people feel secure. It might as well be called “Social Insecurity”
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Don’t worry about it. They’ll come up with a means test (besides the means test already in place, where current recipients have to complete a worksheet, where the higher their total income, the greater the amount of Social Security must be included in Adjusted Gross Income, meaning that besides people that are still working while collecting, people who saved and have, ‘unearned income’ on their savings also must pay more in tax on their Social Security benefits than people who earned the same amount throughout their working lives and receive the same benefit amount, but spent it instead of planning for the future, effectively meaning they keep less of their Social Security payment.) and FragileDeal people who saved, and ‘don’t need it as much’ will all get screwed, so splurgers get rewarded and the politicians can claim that the Social Security system is still viable. And, as you started mentioning, why do I think that those of us with ‘retirement plans’ like pensions, deferred compensation and IRAs will will find politicians looking at the money we saved and claim we already have retirement plans.
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I liked your post, but I don’t like your post, if you get my meaning. 
If means testing comes to pass, as I said earlier, I’d rather be in that position than the other extreme. But the thing that will make me angriest is the government will probably do what they always do - “grandfather” in those who are already collecting and make the new laws apply to new applicants. If they’re going to means test, it should apply to current recipients, too.
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Which is one reason I say: Start collecting at 62. Even if you are promised 8% per year more for waiting, get the money out of the government’s name into your name and your own account ASAP…
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As I read through the replies, it gives me comfort to see that I am not alone in believing means testing will expand in the future. My strategy will likely be to plan to drain my retirement accounts starting at age 59.5, and have zero left in them by the time I am eligible for SS.
Given that current minimum age is 62 to collect, it’s very likely the minimum age to collect will be 65+ when I am of age, so that gives me 5 or more years to drain my retirement accounts. Even if the age remains at 62, I will have 3 years to drain my retirement accounts before SS kicks in.
The downside is that a surviving spouse gets permanently reduced survivor’s benefits. Still, everyone has to weigh their situation for advantages/disadvantages to any strategy.
I think by the time you’re 62 making this decision, you will have a pretty good idea what the current rules and taxes will be and I suspect they won’t change further in the next couple years. often they are grandfathered for older people at the time the change is made so it doesn’t mess up retirement planning like this.
The most important consideration at the time IMO would be your current health and prospectively life expectancy. By delaying taking your SS incrementally from 62 to 70, you’ll get an increase in 8% more benefits per year. The breakeven will be if you think you’ll live about 12 years or more from that time; if you think you won’t, take the money now. If you’re 70 and think you’ll make it to 82+, waiting will be a good gamble and will decrease your longevity risk since now the government is on the hook for paying you $3k/month (or whatever) for your whole life.
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I’m not familiar with the specific breakeven analysis you used, however it’s my understanding that any of these types of calculations requires factoring in WACC (Weighted Average Cost of Capital) such that if interest rates are high, then your breakeven point is sooner, whereas if interest rates are low, then breakeven would be longer. For example:
Suppose high yield “risk-free” savings accounts are yielding 10% interest when you turn 62. If you start collecting SS at 62 and banking all of the money at 10%, compounded annually, then over the 8 years you wait to turn 70, you’ll have a lot more money saved up than if interest rates were 1%. Thus, in a higher interest rate environment, the breakeven point at which to decide whether to collect at 62 or 70 will be shorter, since the up-front money is more valuable, earning a high rate of return.
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I don’t disagree with you in theory. But, I never forgot something a high school English teacher pointed out in class one day over 35 years ago, “There’s a lie in believe”. I’m sure those General Motors bondholders haven’t forgotten how they were told they were first in line, then the government shoved them back in line, devaluing their investment further. Employees of the City of Detroit were told that their pensions were guaranteed by the state constitution. A federal court decided otherwise.
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SS is an inflation indexed annuity, so to the extent risk free rates track the CPI with a roughly constant offset, you don’t need calculations like this. If something dramatic happens with interest rates and they rise and also decouple from CPI, yeah, you might want to take the money sooner. This strikes me as pretty exceptional, but it’s not something you have to worry about in advance. Wait til your 62, assess the situation, and make the best choice at the time based on the current tax situation, your health prospects, interest rates, etc. if any of those variable change in a meaningful way in the next few quarters, you can always change you mind and signup.
Separately, cost of capital decisions can matter if you want to invest your retirement income more aggressively rather than spend it on living expenses, but that’s not the typical retiree profile.
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That’s going to be tough, no? You’re going to pay a ton of taxes…
Or am I missing something?
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I don’t see the connection between SS being CPI inflation adjusted, and the need to use a WACC when calculating the age at which one should collect SS.
Your SS payment is inflation-adjusted whether you start collecting at 62 or 67. The only difference is if you collect at 62, you could theoretically put that money into a high yield savings account, assuming you didn’t need to spend it to live on. And if you did need to spend it to live on, it doesn’t matter how much more you get at 67 because you need it now.
So assuming you put all of your SS money into a high yield savings account starting at age 62 through 67, then you’ll have growth of that money over that 5 year period. If interest rates were 100%, you would more than double your money during that time period. If interest rates were 0%, you’d have exactly the same money at the end of the 5 years.
Imagine interest rates were 10,000%, you’d have over 10x the money over those 5 years. At those interest rates, wouldn’t it make more sense to start collecting at 62 and get 10x the return on that money, than wait until 67?
Interest rates need to be taken into account because the opportunity cost of not collecting at 62 must include the missed compounded interest earning potential over those years. Thus, my argument for including WACC in the calculation of whether it’s better or worse to start collecting at 62.
Is your strategy to avoid being means tested out of SS by not having RMDs while collecting SS?
Because nominal short term interest rates typically track CPI broadly, so if you’re discounting the PV of your SS annuity, it doesn’t change much with small moves in rates because they’re small and if there’s a larger move in rates, it’s often because CPI has moved similarly and now the value of the CPI-adjusted payments goes up to roughly offset the higher discount rate.
I mean, if you think you can earn 10-15% with low risk with your Clever Trading and use that for your discount rate, you’re not going to want any annuity and if you’re stuck with one like SS, you’ll cash it in first chance you get. If you’re married, there are additional considerations to taking it early between 62 and 65 (you hurt both your and your spouses benefits, which makes at least waiting to 65 better, especially if you expect your spouse to claim on your record and outlive you).
RMDs occur when you have money in your retirement account. My goal is avoid being means tested by not having any money in retirement accounts. As I describe in the original post, I expect means testing to change in the future, perhaps to even include the net value of your retirement accounts.
In current 2017 timeline, means testing is only income based, so if you can reduce RMDs, you reduce “income” and lower means testing impact against you. However, in the future, the net value of your retirement account may be taken into means testing calculations, so my goal is to have nothing in there.
Think about it - why would someone who has $500k in their retirement accounts get to collect social security? They certainly don’t need it.
While I disagree with the previous statement (because the person with $500k in retirement accounts has spent a lot on SS taxes over the years), it would gain a lot of traction in a liberal political environment.