This episode revolves around when you should draw social security in a rising tax environment.
David believes that if you have taken stock of the fiscal landscape of the U.S., it seems fairly obvious that tax rates will have to rise dramatically in the next 10 years to keep the country solvent. This should have a bearing on when you elect to receive your social security.
As David explains, each year you delay taking social security past age 62, your benefit will increase. The amount of the increase you’ll experience varies from person to person. On average, it’s going to be about 7.4% per year.
David discusses another scenario, one in which you postpone taking your social security until your full retirement age of 67. In this case, because you postponed taking your benefit for five years, you’d experience an average growth of 7.4% on your benefit over a shorter period of time as compared to the scenario in which you’d take social security at age 62.
The third scenario is one in which you’d take social security at age 70. This is the age at which delaying social security no longer makes sense because you’re no longer going to be getting that 7.4% increase. Mathematically and financially speaking, it just doesn’t make sense to delay any longer.
If you’d like to reach your break-even point, you should create an Excel spreadsheet, create 3 columns, and add up the cumulative benefits you’d receive.
David shares a couple of ways to get an estimate on how long you’re going to be living for. On the one hand, there’s the website you can use to get an estimate: Blueprintincome.com. This will give you an imprecise – unofficial – ballpark life expectancy prediction.
One the other hand, there’s a much more precise way to find out how long you’re going to be living for: going through the life insurance underwriting process.
David perceives life insurance underwriters are sort of like oddsmakers in Vegas.
Depending on the method you use to get a ballpark life expectancy prediction, it may make more sense to get all of the money out of the account(s) as soon as possible, when you reach the age of 62.
David goes over a couple options in terms of what would happen if you were to do a Roth conversion.
Mentioned in this episode:
David’s books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram