How much and when you give, for most of us, somewhat depends on what stage of life you are in. In our family's early (working) years, saving for retirement was the paramount goal. We contributed a reasonable amount to charities, but securing our retirement came first.
We have been very fortunate, and have (like many Humble Dollar readers) arrived at a point that we have far more than we need (or want to spend on ourselves and family), and now, in retirement, we are "making up for lost time" in our charitable giving. We give at least 20% of our annual gross income to charities through Qualified Charitable Distributions from traditional IRAs, and plan on giving at least 20% of our estate to charity (again, through bequests from a sizable traditional IRA).
We firmly believe that those of us that have been blessed with good fortune have an obligation to contribute to the betterment of society - and, it makes good sense, tax-wise!
One of the most common justifcations for collecting at 62 is that the recipient "needs" the money. Since most folks' retirment income is a combinatiion of liquidation of assets and SS benefits, if one "needs" to collect at 62, one simply cannot afford to retire at that age. Far preferable to spend assets down early in retirement and delay SS (for a higher, guaranteed, inflation adjusted payment for life) to protect against the chance of a significantly longer life than anticipated.
The importance of the "break even" age depends heavily on a couples' unique circumstances. For instance, in our case, my spouse (the lower earner) had a benefit on her own record higher than her spousal benefit on mine, but my benefit was significantly higher than hers. She is five years younger than me. We are both in good health. When we ran the projections, her collecting on her own record at age 62 and me waiting until 70 had a very high probability of yielding far more in eventual benefits (possibly hundreds of thousands) for both of us.
As far as "losing" if one dies before the "break even" age, that's a far less important concern than living quite longer than anticipated and having a permanent low SS benefit.
As a financial planner that has prepared hundreds of retirement projections for clients, this article is spot on. However, Dick fails to mention one important source of assumptions, the clients' assumptions. One of the planners responsibilities is to bring up the assumptions the clients forget, such as home maintenance, auto replacement costs, medical costs, etc. Yes, the investment return and volatility assumptions are hugely important, and we always erred on the conservative side on both. It's also important to point out to the client that assuming relatively minor reductions in future expenses can result in significant increases in the success of their strategy. The planner should tell the client there are no guarantees in their future,and this is simply a reasonable roadmap and invariably will require some adjustments (both positive and negative) as events develop.
The main objective of a properly done retirement plan is to either put the client's mind at ease that they are well prepared for retirement or convince a totally unrealistic client that they are headed for disaster, as their assets cannot possibly accomplish their goals.
Although not the focus of Dick's article, a properly done Social Security analysis, especially for a couple, is a huge part of a retirement plan.
As a financial planner that advised clients for decades on Social Security strategies, I find this conversation fascinating. Most folks know nothing about the "math" behind Social Security Benefits. Social Security is one of the most progressive systems in existence, both in the calculation and taxation of benefits. This, in my opinion, is as it should be, as those on the bottom of the income spectrum need every dime they can get simply to survive. Those of us that are more fortunate should simply count our blessings and realize that we are keeping our (much) poorer fellow citizens from being homeless.
Eliminating the taxation of Social Security benefits for higher (total) income taxpayers simply hastens the demise of the Social Security system. Similarly, Congress's recent elimination of the Windfall Elimination Provision and Government Pension Offset (which limited Social Security benefits for those taxpayers who were in retirement systems that did not pay into Social Security) was a poor move, as it also hastened the demise of the Social Security system.
The only "safe" bond investment are individual TIPS. They are guaranteed by the US government (no default risk) and (if held to maturity) have a known real return (no interest rate risk). I would suggest a ten year ladder of individual TIPS to cover your retirement spending for ten years if the stock market suffers a prolonged decline. If stocks do not decline, sell stocks for income, and keep rolling that ten year ladder forward (by purchasing future TIPS as the current ones mature). They should be held in a tax deferred or tax free account.
TIPS mutual funds do have some risk, as they have no maturity date.
Interesting discussion. As a (now retired) financial planner, my observation was that invariably clients underestimated their life expectancies. I had some interesting and enlightening conversations some years ago with Joe Tomlinson, a retired actuary who has published extensively on such topics. He commented that life expectancy for highly educated, physically fit individuals (the typical Humble Dollar reader) was 15-20 years longer than those with limited education and poor physical condition. He also said that life expectancy for these individuals was increasing (for individuals at a given age) almost 1/3 year every year into the future. So any past published table is probably seriosly outdated by now.
I just looked at an 2015 annuity table (which is based on those healthy, educated folks) which Joe generously provided, updated with those annual increases since its initial publication, for a 70 year old man and woman. There is an almost 50% probability that the man will be alive at 90 and the woman at 95. The fortunate 50% will live (possibly much) longer!
Most Humble Dollar readers should plan on being around for a long time (and plan prudently to fund that entire period)!
Reference the SS issue (collecting at 70): For a married couple, the math is somewhat complex, due to the widow(er)'s benefit. However, for a single person (or normally the older, higher earner spouse) in good health, it's relatively straightforward. One simply has to look at SS benefits as an inflation protected lifetime annuity (which it is). If one compares the lump sum required to produce those annuity payments for collecting at any age between 62 (the first year one is eligible for SS retirement benefits) and age 70, there is an appoximate 4% over inflation annual return for every year of delaying until 70. One cannot achieve that guaranteed return with any other alternative investment.
For the often expressed reason that one "cannot afford to wait", that really means that one cannot afford to retire.
Comments
How much and when you give, for most of us, somewhat depends on what stage of life you are in. In our family's early (working) years, saving for retirement was the paramount goal. We contributed a reasonable amount to charities, but securing our retirement came first. We have been very fortunate, and have (like many Humble Dollar readers) arrived at a point that we have far more than we need (or want to spend on ourselves and family), and now, in retirement, we are "making up for lost time" in our charitable giving. We give at least 20% of our annual gross income to charities through Qualified Charitable Distributions from traditional IRAs, and plan on giving at least 20% of our estate to charity (again, through bequests from a sizable traditional IRA). We firmly believe that those of us that have been blessed with good fortune have an obligation to contribute to the betterment of society - and, it makes good sense, tax-wise!
Post: Saving and Giving
Link to comment from June 28, 2025
One of the most common justifcations for collecting at 62 is that the recipient "needs" the money. Since most folks' retirment income is a combinatiion of liquidation of assets and SS benefits, if one "needs" to collect at 62, one simply cannot afford to retire at that age. Far preferable to spend assets down early in retirement and delay SS (for a higher, guaranteed, inflation adjusted payment for life) to protect against the chance of a significantly longer life than anticipated.
Post: Breaking even? Why should anyone care? I don’t
Link to comment from May 18, 2025
The importance of the "break even" age depends heavily on a couples' unique circumstances. For instance, in our case, my spouse (the lower earner) had a benefit on her own record higher than her spousal benefit on mine, but my benefit was significantly higher than hers. She is five years younger than me. We are both in good health. When we ran the projections, her collecting on her own record at age 62 and me waiting until 70 had a very high probability of yielding far more in eventual benefits (possibly hundreds of thousands) for both of us. As far as "losing" if one dies before the "break even" age, that's a far less important concern than living quite longer than anticipated and having a permanent low SS benefit.
Post: Breaking even? Why should anyone care? I don’t
Link to comment from May 18, 2025
As a financial planner that has prepared hundreds of retirement projections for clients, this article is spot on. However, Dick fails to mention one important source of assumptions, the clients' assumptions. One of the planners responsibilities is to bring up the assumptions the clients forget, such as home maintenance, auto replacement costs, medical costs, etc. Yes, the investment return and volatility assumptions are hugely important, and we always erred on the conservative side on both. It's also important to point out to the client that assuming relatively minor reductions in future expenses can result in significant increases in the success of their strategy. The planner should tell the client there are no guarantees in their future,and this is simply a reasonable roadmap and invariably will require some adjustments (both positive and negative) as events develop. The main objective of a properly done retirement plan is to either put the client's mind at ease that they are well prepared for retirement or convince a totally unrealistic client that they are headed for disaster, as their assets cannot possibly accomplish their goals. Although not the focus of Dick's article, a properly done Social Security analysis, especially for a couple, is a huge part of a retirement plan.
Post: Assumptions matter most
Link to comment from March 15, 2025
As a financial planner that advised clients for decades on Social Security strategies, I find this conversation fascinating. Most folks know nothing about the "math" behind Social Security Benefits. Social Security is one of the most progressive systems in existence, both in the calculation and taxation of benefits. This, in my opinion, is as it should be, as those on the bottom of the income spectrum need every dime they can get simply to survive. Those of us that are more fortunate should simply count our blessings and realize that we are keeping our (much) poorer fellow citizens from being homeless. Eliminating the taxation of Social Security benefits for higher (total) income taxpayers simply hastens the demise of the Social Security system. Similarly, Congress's recent elimination of the Windfall Elimination Provision and Government Pension Offset (which limited Social Security benefits for those taxpayers who were in retirement systems that did not pay into Social Security) was a poor move, as it also hastened the demise of the Social Security system.
Post: Should Social Security benefits be income tax free?
Link to comment from February 1, 2025
The only "safe" bond investment are individual TIPS. They are guaranteed by the US government (no default risk) and (if held to maturity) have a known real return (no interest rate risk). I would suggest a ten year ladder of individual TIPS to cover your retirement spending for ten years if the stock market suffers a prolonged decline. If stocks do not decline, sell stocks for income, and keep rolling that ten year ladder forward (by purchasing future TIPS as the current ones mature). They should be held in a tax deferred or tax free account. TIPS mutual funds do have some risk, as they have no maturity date.
Post: Bond Index Funds or Something Else?
Link to comment from February 1, 2025
Interesting discussion. As a (now retired) financial planner, my observation was that invariably clients underestimated their life expectancies. I had some interesting and enlightening conversations some years ago with Joe Tomlinson, a retired actuary who has published extensively on such topics. He commented that life expectancy for highly educated, physically fit individuals (the typical Humble Dollar reader) was 15-20 years longer than those with limited education and poor physical condition. He also said that life expectancy for these individuals was increasing (for individuals at a given age) almost 1/3 year every year into the future. So any past published table is probably seriosly outdated by now. I just looked at an 2015 annuity table (which is based on those healthy, educated folks) which Joe generously provided, updated with those annual increases since its initial publication, for a 70 year old man and woman. There is an almost 50% probability that the man will be alive at 90 and the woman at 95. The fortunate 50% will live (possibly much) longer! Most Humble Dollar readers should plan on being around for a long time (and plan prudently to fund that entire period)!
Post: Long Odds
Link to comment from May 6, 2024
Reference the SS issue (collecting at 70): For a married couple, the math is somewhat complex, due to the widow(er)'s benefit. However, for a single person (or normally the older, higher earner spouse) in good health, it's relatively straightforward. One simply has to look at SS benefits as an inflation protected lifetime annuity (which it is). If one compares the lump sum required to produce those annuity payments for collecting at any age between 62 (the first year one is eligible for SS retirement benefits) and age 70, there is an appoximate 4% over inflation annual return for every year of delaying until 70. One cannot achieve that guaranteed return with any other alternative investment. For the often expressed reason that one "cannot afford to wait", that really means that one cannot afford to retire.
Post: Stories We Tell
Link to comment from April 10, 2024