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Late to the Party - Last Minute Retirement Planning

ReddyLeaf

Active Member
Mar 19, 2014
1,574
2,373
WA State
........I've set the years 2022-23, to generate numbers in a range of 30-40% gains, and all of the following years using random percentages from a range of 6-10% through 2039.

......Gosh, it is fun to speculate......
I think those are realistic numbers, especially given the massive sales growth expected from GF4 & GF5 (future GF6?). The biggest unknown is when the Black Swan -50% event occurs and where will you be on your retirement curve at that time (sequence risk). The worst possible situation is retirement right before the drop, being forced to sell stocks in the trough, and then having fewer shares to experience the rebound. Personally, I’m mitigating that by having 5 years of CDs in a ladder (unfortunately paying 2% max), so that I’m not forced to sell during a crash. This allows my TSLA portfolio to rise to 2-3x what I believe is “enough.” I’m seriously thinking about selling Jan/Mar 2023 covered calls at $1700 strike for all of my shares. If/when we reach that price, it should definitely be enough (unless hyper inflation sets in).
 
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2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
The biggest unknown is when the Black Swan -50% event occurs and where will you be on your retirement curve at that time (sequence risk). The worst possible situation is retirement right before the drop, being forced to sell stocks in the trough, and then having fewer shares to experience the rebound.


Yes, I've been thinking about preparing for the Black Swan which seems prudent in any case. If the accounts could get over Teslanaire levels in the next year or two I would take half and put that in any number of appropriate places.

Also, considering building an "off grid"-ish Barndominum with solar and rainwater collection to further reduce recurring monthly bills.
 

2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
When to apply for Social Security

In working out the evil plan I decided to work the numbers a little to see if there were any advantages of one year over another from 62 up to 70. The rates change, based on the payments at Full Retirement Age (FRA), which, naturally, has a convoluted calculation method.

The entire system is convoluted and something hinted to me that it was likely worth digging into a little to see what I might discover.

Using the data from the SSA for my account I worked out the annual amounts I would receive from application to age 80, then, subtracted the total for year 62 from each of the totals for the following years through applying at age 69.

Here are:
  • the differences subtracting 62's total from each year's total after 62
  • each overall payout for each application age to age 80
  • the ranking from High (1) to Low (9)

YR.....Difference...............Total...............Payout Ranking

62.... -0-..........................$348,948....................9
63.....$3,360...................$352,308....................7
64.....$6,252...................$355,200....................5
65.....$11,232.................$360,180....................3
66.....$12,588.................$361,536....................2
67.....$4,392...................$353,340....................6
68.....$16,956.................$365,904....................1
69.....$10,906.................$359,854....................4
70....-$21,798.................$327,150....................8

Weird, huh? It goes up, it goes down, it even goes negative at the end. Essentially, indicating that applying for benefits in the year that provides the highest monthly payment (age 70) nets nearly 22K less overall than applying at 62 and taking the lower monthly amount to a designated final age (80 in this calculation).

The highest total payout over that span of years would be for those in my age group who apply at 68.
Second and Third were ages 66 and 65, respectively.

Based upon this I chose applying for SS at 65 because I'd get to use it more effectively by taking SS payments at a younger age and combine with other distributions to enjoy. There wasn't much difference between the totals for 65 and 66 (~$1356). So I vied for the earlier year.

Despite all the formulas that SSA has devised to ensure a recipient receives an equal payout over their retirement regardless of when you apply, clearly, this is not the end result.

Beyond that, their enticement to put off application to receive a larger monthly payment may be much worse if you wait the longest to apply, and the spread between the earliest and the mandatory age is far from being a linear progression.

This seemed pertinent enough to warrant sharing in this thread as it plays into planning of distributions.

Here a link to the calculator at SSA that I used to get the numbers applied to calculate payout each application year, based upon my FSA amount on record: Early or Late Retirement Scroll down to find the calculator.






 
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adiggs

Active Member
Sep 25, 2012
4,251
11,734
Portland, OR
All of the notions around optimizing payouts by waiting until later are dependent on an actuarial calculation over a broad swath of US citizens. Maybe age 80 is that right age - I don't really know (and it isn't germane at the moment anyway).

The point is that whatever age you choose, you can move the answer up or down.

At the extreme, if you use age 62, then clearly there is no benefit to waiting (you're dead :D).

If you live to be 110, then I'm pretty sure that whatever the maximum benefit is, it'll pay off in spades by waiting. SSA has averaged all of that together.


That being said - the information here is fantastic! Thank you immensely for taking the time to post this.

One thing that I get from your results (which doesn't mean it's what I will actually do) reinforces my own inclination to start taking payments at age 62. Specifically for the reason that I don't know what the future will hold, and thus sooner is better. I also have the desirable position that earlier payments will delay or slow down withdrawals, so that I'll have EVEN MOAR money / assets at the end for my wife or I (whoever is the last to go) to donate to charity.
 

MP3Mike

Well-Known Member
Feb 1, 2016
15,324
33,239
Oregon
One thing that I get from your results (which doesn't mean it's what I will actually do) reinforces my own inclination to start taking payments at age 62. Specifically for the reason that I don't know what the future will hold, and thus sooner is better. I also have the desirable position that earlier payments will delay or slow down withdrawals, so that I'll have EVEN MOAR money / assets at the end for my wife or I (whoever is the last to go) to donate to charity.

Exactly this. And I'm sure that I can outperform the percent difference gained by waiting with the extra money that I can retain in my investments in the early years.
 

2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
@adiggs and @MP3Mike, you are both thinking the way I was when it occurred to me that there might be an optimal choice for the application year. I had originally planned on 62, then realized how, with taking distributions from TSLA-based IRA early on, it was better to burn through the IRA quicker at a lower tax rate, and this strategy would be helped by putting off the SS.

It is all flexible and I may reevaluate it against distributions to see how taking smaller pieces of the IRA along with SS might change the return on the IRA, then compare that to what starting SS later nets.

I picked 80 to use as an end year, so these numbers will be different with other end points chosen. That is a tough number to pick accurately and 80 was a balance for me against statistical expectations and was between when each of my folks passed. Made for a handy number.
 
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2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
Also, have to figure in applying at 62 and investing those SS payments into TSLA (while taking distributions from IRA) and see how that might alter the long-term numbers.The advantage being that the SS would go into the Investment or Roth accounts replacing some of the shares taken from the IRA account as distributions.

The SS additions to TSLA could grow to Long-term status in the Investment account and be tax-free growth in the Roth. This could be a useful strategy. I'll have to take into consideration how additional taxes on SS are tallied because the taxes on the IRA as "income" will affect the tax status of the SS on the 1040.
 

2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
Final Thoughts on Hidden Benefit of Taking SS at 62

Further cogitation upon the matter revealed how buying TSLA with the SS payments would be an exercise in futility. (other than for maxing out the Roth each year)

If the SS is applied directly to annual living costs (general spending) it will allow fewer shares being distributed from a retirement account (IRA, Invest, Roth).

Doing so:
  • preserves shares in the Invest Account that are already Long-term (reduced tax rate) to grow.
  • extends the IRA distributions to be spread out over a longer time period while they grow.
  • provides cash to bump the Roth by the max ($7K) each year growing more tax-free gravy for whatever.

I went ahead and ran the numbers to show how taking SS at 62 represented a much larger amount of share growth that could be lost by taking shares as a distribution sooner than needed in order to accommodate later SS application.

This revelation was the most significant aspect about taking SS at 62 which I had overlooked. Preservation of growing shares by delaying their sale has a bigger impact down the road than does maximizing SS payout. The magic of compounding is given a little more time to put on a show in the early years where it would make the most difference.

My final decision will be to take SS at 62 (in a few months) and not give it any further thought.

Thanks @MP3Mike for steering my thoughts this way.
 
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2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
Epiphany For When and How to Take Distributions

In researching other aspects of wealth management, I was learning more about Margin. This was to be for the purchase of a Model Y, rather than for stock purchases. Having considered the advantages of this vs. getting a loan for the car over the past week or so, it dawned on me how there was a much better way to apply this margin loan.

By using margin on the Investment account to fund living expenses for two years, instead of taking IRA distributions at the time of retirement, the IRA can grow for two more years.

Using the ever-expanding spreadsheet and a conservative annual gains percentage, instead of having nearly depleted the IRA in three years, it will have nearly doubled. Whoa! To quote SMR, This Matters!

Next on my list of things to do is to shop around to brokers for competitive Margin Interest Rates. I've read about other folks approaching their broker with an "either make me a better rate or lose my account" proposal and getting the rate matched or reduced below those compared. Some have just moved their accounts.

At this time Fidelity publishes 6.825% for the amount I'm considering borrowing on margin. There's ample room for improvement.
We'll see how this reducing the erosion of my gains held for Margin will go ...
 

MP3Mike

Well-Known Member
Feb 1, 2016
15,324
33,239
Oregon
At this time Fidelity publishes 6.825% for the amount I'm considering borrowing on margin. There's ample room for improvement.

You should look at the "Line of Credit", or "Securities based lending" or "Pledged Asset Line", options from the providers. (Every broker seems to call it something different.) It is like margin but can't be used for trading/investing and the rate is generally much lower than margin.

Here is a link to E*TRADEs where rates are 2.191%-5.495% depending on how much value you are securing against: E*TRADE Line of Credit
 

2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
You should look at the "Line of Credit", or "Securities based lending" or "Pledged Asset Line", options from the providers. (Every broker seems to call it something different.) It is like margin but can't be used for trading/investing and the rate is generally much lower than margin.

Here is a link to E*TRADEs where rates are 2.191%-5.495% depending on how much value you are securing against: E*TRADE Line of Credit

Thanks, I'll ask about that.
 

ReddyLeaf

Active Member
Mar 19, 2014
1,574
2,373
WA State
FYI, if planning to move or get a mortgage in the future, do it before retirement while you still are earning a salary. You cannot pledge IRA assets for getting a loan, margin, portfolio margin, etc. The mortgage loan officer will look at your total income such as salary, pension, social security, annuity payments, etc. They might be able to use the annual IRA payout amortized for life expectancy, I’m not sure. I’m looking at moving after retirement and getting a mortgage which has me looking into this stuff.
 

2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
Want to mention here the thread that was spawned about SBLOCs. Lots of good information there.

I've applied for an account at Interactive Brokers (IBKR) as a second to the original Fidelity accounts. The strategy being to play IBKR interest rates for Margin to Fidelity, and, be ready to move my Investment account to an IBKR-Pro account if Fidelity won't match it.

Currently, Fidelity's rate is 6.825% for the amount in the Margin account, and IBKR is 1.247% for the same amount.

Fidelity bases their rate on WSJ, and IBKR bases theirs on 30 Day LIBOR.
 
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2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
After going over everything exhaustively, checking for some glaring oversight on my part, over the next few days I'll notify the boss of my imminent retirement. :cool:

Does anyone else get butterflies in their stomach as the moment of transition from contemplation to action unfolds?
 

Discoducky

P100DL, 2021 M3, 3 CT reservations and counting
Dec 25, 2011
3,457
3,573
Seattle
After going over everything exhaustively, checking for some glaring oversight on my part, over the next few days I'll notify the boss of my imminent retirement. :cool:

Does anyone else get butterflies in their stomach as the moment of transition from contemplation to action unfolds?
Yes, haven't pulled the trigger yet. Waiting for $1000/share. Maybe I like the idea of the free health care from work? I'm joking. I find it odd to retire in my 40's though. I'll sell core shares, only a fraction, to ensure I'm secure, but mostly play options for cash flow and pass the time
 
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2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
Yes, haven't pulled the trigger yet. Waiting for $1000/share. Maybe I like the idea of the free health care from work? I'm joking. I find it odd to retire in my 40's though. I'll sell core shares, only a fraction, to ensure I'm secure, but mostly play options for cash flow and pass the time

I had the $1K / share target in mind until I realized I could live on the margin loan while I wait for the SP to appreciate.

Risky? Yes. But, I'm really tired of the BS at work. Current assets should offer many years to manage investments another way if for some reason TSLA didn't perform as well as I hope.

All that is needed to hit the target is for TSLA annual gains to fall somewhere between 13%-37% in each of the next 2 or 3 years to be set. It is a bit of a bet on my part that it will achieve these levels. Fingers crossed.
 
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ReddyLeaf

Active Member
Mar 19, 2014
1,574
2,373
WA State
I had the $1K / share target in mind until I realized I could live on the margin loan while I wait for the SP to appreciate.

Risky? Yes. But, I'm really tired of the BS at work. Current assets should offer many years to manage investments another way if for some reason TSLA didn't perform as well as I hope.

All that is needed to hit the target is for TSLA annual gains to fall somewhere between 13%-37% in each of the next 2 or 3 years to be set. It is a bit of a bet on my part that it will achieve these levels. Fingers crossed.
What happens if you’re wrong and TSLA doesn’t grow/appreciate? What if we have another recession? You could be unemployed and unemployable just because of your age. As a hedge, I would offer to work 50% time or work from home, to assist with the transition and help “train” your replacement. I did that for 3+ years and it greatly reduced my stress level. It also put everyone on notice that I was on the way out and didn’t have to take on any “crap” tasks. I was able to focus on the tasks that I enjoyed. It worked out ok, not perfect. Sometime in the middle, more work came in that couldn’t be deferred, and management hadn’t hired enough staff as a replacement (yes, more than one person is often needed to replace an out-going retiree). Thus, I offered to temporarily go back to full time to help offset the extra work. It was definitely tough, and after a year I went back to half time, but put them on notice that there wouldn’t be a “next” time. No matter where I’ve worked, management is always slow to hire, usually 1-2 years behind, because they don’t want to expend the extra resources (money, benefits, equipment, space, training) until absolutely the last moment.
 

2daMoon

Mostly Harmless
Nov 25, 2020
663
4,566
Terra
What happens if you’re wrong and TSLA doesn’t grow/appreciate? What if we have another recession? You could be unemployed and unemployable just because of your age. As a hedge, I would offer to work 50% time or work from home, to assist with the transition and help “train” your replacement. I did that for 3+ years and it greatly reduced my stress level. It also put everyone on notice that I was on the way out and didn’t have to take on any “crap” tasks. I was able to focus on the tasks that I enjoyed. It worked out ok, not perfect. Sometime in the middle, more work came in that couldn’t be deferred, and management hadn’t hired enough staff as a replacement (yes, more than one person is often needed to replace an out-going retiree). Thus, I offered to temporarily go back to full time to help offset the extra work. It was definitely tough, and after a year I went back to half time, but put them on notice that there wouldn’t be a “next” time. No matter where I’ve worked, management is always slow to hire, usually 1-2 years behind, because they don’t want to expend the extra resources (money, benefits, equipment, space, training) until absolutely the last moment.

That is pretty much how I expect it to go, and your suggestions for staying on is how it may play out. Just have to see how they respond to the news.

Frankly, I have been trying for years to demonstrate how, after 20+ years at the job, perhaps my salary should be more than just above entry-level for the job description as listed on Federal Labor and Job Finder websites that show granular numbers down to the zip code.

The plan is to have a meeting with the boss and the VP in a couple of days, announce the retirement, then see what comes of it. Kinda got to put that lever in place to get them motivated. :cool:

At that point, I'll let them know how I'm giving myself a raise by retiring, so, they will have to do better than that if they decide they want more time from me. I'm the only person who knows how ALL of the IT stuff for the company works.

Honestly, they are way overdue for this awakening and I'm a little bitter about how they have put me off, year after year. I've put together proposals showing how the pay rate is substandard and have presented these at least four times during reviews. (it is a parent corporation that handles HR, so, being distant makes it easy to ignore my arguments, and not getting an push from the bosses on site results in nothing happening) I like the work, the company, the folks, and wish them no harm. Still, things are going to change, one way or another.

This might get interesting, and I may end up working for longer for them if we can come to some equitable arrangement. (I have already made application for Social Security, if I'm drawing a check SS can/will adjust or delay their payments)

Maybe I should queue up Tom Petty, "It's good to be King" on repeat for background music during the meeting? :rolleyes:

That, or perhaps something from Johnny Paycheck ... :D
 
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Featsbeyond50

Member
Apr 27, 2019
216
545
Washington
Can you wait until April?

I hope I'm wrong, but I have this idea TSLA will come under selling pressure after the one year anniversary of the Corona Dip. Share holders who bought after the dip will start to to realize gains at the Long Term tax rate. I'm no master of the market, and I'm probably wrong, but if I was in your place I'd wait a little bit longer just to see if that pressure happens.
 
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