I’ve been very disappointed there. People saying stuff. I will check out your suggested tools though. The math should be doable for my simplified case anyway. I just don’t know how to do it. Math wise does bridging make sense compared to leaving it in the index fund over a reasonable expectation for my life expectancy?
And again after that there are the not math parts. Volatility is a risk I have high tolerance for but there are other risks, and not all are black swans.
I have a very realistic expectation that my retirement funds, SS distributions, and other that are likely events, will provide amply for even a long life span with plenty leftover. That’s not my question though. Even if this ends up as inheritance to pass on, which option does best at different life expectancies? I still should make the “best” choice possible just out of principle.
Heh. We had moved into a local condo, new construction, and our current house with yard is downsized in expense to that! It’s a small house and just right. The only concern would be if eventually the stairs become too much for my wife, who has had some orthopedic issues in the past. Our mortgage has a ways to go. But good rate.
Not me - I just took one on as I rapidly approach an early (late 50’s) retirement . At a higher interest rate at that . I’m doing everything backwards. But it fell into my lap at slightly below market (at the time), I do have lots of equity since I put more than 50% down and I content myself with knowing ~40% of my fellow Americans have a mortgage past age 64 these days (up from ~25% a generation ago).
But yeah, I’m one where my expenses are NOT likely to be going down in retirement. Indeed they may be rising as the balance of potential future CA home insurance woes, increasing medical insurance costs and rapidly rising HOA dues eat away at my meager capped COLA. Just have to plan for it. If my medical insurance costs don’t seriously explode and SS is still available to me a few years from now under its current configuration (no guarantee under the prevailing political/economic conditions), I should be comfortable. If not, well…I’ll probably still be fine, just less comfortable.
Ach. Tried but can’t figure out how to use it to model what I want to model, the bridging question. The other free ones I’ve tried same. If you can figure out how to use it to answer the question please let me know. It should be true for any two sets of SS distribution, Y amount in portfolio, and withdrawal changing based on taking SS at 67 or 70. Their couch potato portfolio of 75% equity is a reasonable one to use.
You would enter the SS and the bridge amount scenarios under the “other spending/income” tab with FIRECalc. Of course you would model each scenario separately. But since FIRECalc outputs only the percentage of a plans success, I don’t think it will give you the absolute numbers that I think you want to see (e.g. scenario A produces $20,000 more than scenario B).
That being said, given that you believe that you have a long lifespan left to live, I think it is a good idea to delay SS until age 70 as the bigger benefit is longevity insurance for you. Still, you’ll need to decide how much of your retirement savings you feel comfortable spending long term, and watch that the 5 years of bridge spending doesn’t wildly exceed that long term amount. For example, if you feel that spending 4% of your retirement nest egg annually (yeah, another rule of thumb, I know) is right for you and your bridge spending bumps that up to 5% or 6% for those 5 years, that’s likely OK as it will drop back to 4% when you do start SS. But if it takes it to 10% or more than that could wreck you, especially in a down market.
Additionally, if you think that your RMDs will end up being too much (more than you need) then spending down your retirement savings before RMDs start will help lower those future RMDs.
You mentioned a high marginable tax rate but didn’t mention what that rate was. Assuming you are talking around 24%, then you want to be aware of IRMAA brackets if you are on Medicare. It might affect how much bridge money you want to actually use. These are issues that you didn’t ask about, but just wanted to mention it if you are not aware.
To model bridging (not exactly my scenario but the question) good enough I need to do a run with three years of (my planned yearly retirement draw - the 67 year old SS benefit) then running full planned retirement draw the remainder of the run with that reduced benefit.
Then compared it to full retirement draw the whole with the 70 year old SS benefit kicking in in year three.
The latter I can see how to do. The former? I can’t figure it out.
The comparative range of outcomes, and number of fails, would suffice for me.
Reality for me is of course more complicated, just from the fact of working for some indeterminate number of future years, and other likely future events.
Thinking more I think I might be over thinking it.
It is really like purchasing an annuity. At least if I understand annuities, which I am not sure of.
Maybe that 8%, or thereabouts since it spread over three years, is the best way think of it. At 67 to 70 would I buy an annuity that returns an inflation adjusted 8% of my purchase price as income for the rest of my life, beginning at 70, nothing remaining in the estate, or prefer to invest that same amount in an S&P500 index fund?
Does that make sense as the best way to think of it?
And phrased that way is it better to “buy the annuity” or invest the same amount in the index fund, which is also likely to return about 8% inflation adjusted with retention of the capital and with greater volatility and possibility of greater or lesser returns?
I never get 8% return on any of my investments. Maybe for a short period when the stock market is up, but not over time.
If there are annuities that return 8% (adjusted for inflation!) please share and I’ll buy.
Yes. Any S&P Index will do it. From previous link:
Years Averaged
(as of end of
December 2024) Stock Market Average Return per Year
(Dividends Reinvested) Average Return with
Dividends Reinvested &
Inflation Adjusted
150 Years 9.381% 6.994%
100 Years 10.569% 7.405%
50 Years 12.393% 8.409%
30 Years 10.985% 8.262%
20 Years 10.475% 7.719%
10 Years 13.316% 10.021%
5 Years 15.377% 10.744%
But with volatility of course. Have to be willing and able to sit through a big drop. Or two.
Do people think the inflation adjusted lifetime annuity analogy is the right way to think of it? If so then I think it is a good deal as an annuity, right? But speak to me of annuities. If I can weather the market’s ups and downs I am likely to do at least as well and still have “the principle”, right?
The 8% isn’t a return in the traditional sense, but just the amount your SS payment will increase for every year you delay past your regular retirement age. That is offset by the addition 3 years that you won’t be getting the payments. And the SS payments are adjusted for inflation every year.
I know you didn’t want any WAGs in response, but your question is a very common one. Yes, one of the scenarios will be better in absolute dollars, but in the grand scheme it’s really not much of a difference. Neither is a bad decision. Either delay and pay the bridge funds out of your retirement account, or take the SS now or when you stop working and take less out of your your retirement account. I suggested delaying SS based on your assessment that you will live a long time, in which case delaying until age 70 is probably the better choice.
As for the annuity, doing that will immediately take the funds out of your control (so no, you lose the principal as the cost of the annuity) leaving you with guaranteed fixed income (that most likely will not have any inflation adjustments) but no funds to leave to your children. Since you seem confident that you have enough retirement funds saved and the desire to have variable spending to treat your children (and future grandchildren), I would think twice before locking that money up. Keep it invested according an asset allocation that matches your risk tolerance, in order to maintain control over any variable spending that you may want to do during retirement. My opinion only.
I understand that. That is the basis of thinking of it as an inflation adjusted lifetime annuity.
By waiting until 70 rather than taking at 67 we are effectively are buying an annual inflation adjusted additional 8% payment for life with the three years of “full retirement age” SS payments. I’m not at all knowledgeable about annuities but that is I think the same as purchasing an inflation adjusted lifetime annuity?
I would not otherwise be looking at annuities, but this one, thinking of it as one, seems like a very good deal one. I think? Still I can very likely do at least as well in the S&P index fund assuming I can weather the ups and down and if I did that I would still have the principle to leave to kids. But it may be a small price for so much decreased volatility.
And I understand it is a common question. I just haven’t seen anything that shows the math to justify the answers I read.
Before you reach RMD age, you should check out what the tax bite would be for withdrawing some money. If you can take out less than the RMD amount, and still be in a low bracket, doing so lessens the hit when you do hit RMD age and have Social Security income also.
BUT the further appreciation of the funds not in the retirement funds will be subject to taxation when liquidated later. I had thought the tactic was to use stocks outside of the retirement funds first to the ability possible?
To get an idea of what your RMD will be, you can use calculators which will estimate what it will be in the future based on your current age and account’s current value. Bankrate has a nice one that shows the RMD for all ages from 74 to 100:
Depending on your current account value, you may end up actually having your RMD go up each year. If the RMDs look like they will be excessive, start rolling your IRAs into Roths to avoid that problem later on.
Huh. I just played with it and while I would have presumed you were right I get numbers dropping right away with 4% and 100K but not dropping until 93 with 4M. Maybe someone can explain why?
. At a higher interest rate at that 
. I’m doing everything backwards. But it fell into my lap at slightly below market (at the time), I do have lots of equity since I put more than 50% down and I content myself with knowing ~40% of my fellow Americans have a mortgage past age 64 these days (up from ~25% a generation ago).