Multi-Year Projection

I am 62 and mostly retired. I am also on Obamacare until Medicare kicks in. I live mostly off withdrawals from my assets. I have a mixture of appreciated and non-appreciated securities outside retirement plans and both traditional and Roth retirement plans. My accumulated unrealized capital gains are relatively modest and I have no heirs to plan to leave assets on a stepped-up basis. I am of course eligible for Social Security and also for a modest pension. My earned income and taxable dividends are maybe $20K a year, and for tax purposes I can reduce that by contributions to my IRA and Keogh.
While I consider myself extremely facile in both taxes and financial planning for someone with no actual credential in either, I go on overload trying to create a sensible multi-year plan. Between the sliding scale of Obamacare subsidies, extra Medicare Part B premium, tax on social security benefits when I take them, etc., my head spins. Prior to last year I was on COBRA from my ex-wife, and I would simply realize capital gains or do Roth conversions to hit the top of the 15% bracket (0% for capital gains) and felt what I was doing was sensible. Now I'm not sure. This year, my first full year on Obamacare, I'm trying to keep my reportable income very low. My retirement funds are maybe 60% Roth, 40% traditional.
My question is, is anyone aware of a tool that will let me optimize my income streams over time? In theory I'd like to say "Here are my assets, assume X% growth per year, here are my options for social security and pension, I need $Y per year growing with inflation, tell me the schedule of where I should go for money each year to minimize my overall taxes."
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On Wed, 30 Oct 2019 09:40:13 EDT, Roger Fitzsimmons wrote:

You don't have a totally free choice,, as I'm sure you know that When you reach age 70½ you _must_ withdraw your required minimum distribution each year from your traditional IRAs and 401(k)s. Many investment houses have RMD calculators on their Web sites, and the downloadable retirement calculators typically take them into account. But the computation is not difficult, just a division of IRA balances by a factor that depends on your age. This is explained in Pub 590-B, which you'll find at https://www.irs.gov/publications/p590b The specific link for figuring your RMD is https://www.irs.gov/publications/p590b#en_US_2018_publink1000230736
One option, if the RMD is more than you actually need to live on, is to transfer part or all of it to a charity. This transfer _does_ count against your RMD, but you don't include it in your income. That means you get the tax benefit even if you don't itemize deductions. The official term is "Qualified Charitable Distribution"; see https://www.irs.gov/publications/p590b#en_US_2018_publink100041439 (Only the first $100,000 of a QCD gets this tax benefit, but if you have enough assets that your RMD exceeds $100,000, you should be getting professional advice about your situation.)
I'm guessing Excel is not your forte? If it were, I think your best bet would be to make up some spreadsheets. That's what I've done, because that way I customize them to my situation.
There are popular retirement calculators, written in Excel but not requiring knowledge of Excel. (You would need a copy of Excel to run them.) The ones I have bookmarked are:
* Retiree Portfolio Model from Bogleheads https://www.bogleheads.org/forum/viewtopic.php?t 352 This is updated often, and there's an active community discussing it.
* Optional Retirement Planner https://www.i-orp.com/Spend/index.html There's also an Extender ORP ("for nerds") https://www.i-orp.com/Spend/extended.html
And I strongly recommend Jane Bryant Quinn's book, /How to Make Your Money Last/. She talks about both pre-retirement and post-retirement strategies, and very clearly.
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Stan Brown, Oak Road Systems, Tompkins County, New York, USA
http://BrownMath.com/
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On Thursday, October 31, 2019 at 10:26:29 PM UTC-4, Stan Brown wrote:

I'm pretty good with Excel, but taxes are complex enough to make this a tremendous amount of work. I use a spreadsheet called 19_1040x (which is released annually) but doing what I want would require creating multiple instances of the sheet and exporting some data to it, then pulling data back from it. Theoretically possible but way more work than I'd like to invest.
I have also been thinking of designing a tax computation engine limited to the elements I would need, either in Excel or VBA, but I'm sure I'd mess something up.
I'm aware of the IRA charitable donation "trick" and indeed had my father use it before he died. I'm not concerned about making my money last. The short description of my plan is that I live on 3% of my assets, which is comfortable now (and will be extremely easy once I start collecting social security and my pension) and try to structure my investments so that I won't be forced to sell equities in a down market.
My tentative plan is to keep my MAGI as low as possible while I'm on Obamacare. After I turn 65, I will take 2-3 years in which I will do significant Roth conversions, and then start collecting social security.
But the questions I'm trying to answer for myself are things like:
1) How much should I convert to Roth, and when? Doing so of course pushes me into a higher tax bracket, and is most useful if it will "move the needle" on my taxes due once I start taking RMD's. 2) How much capital gains do I want to realize from the appreciated assets I have, and when? 3) Right now I am living off my taxable assets, which I think is the right approach rather than dipping into my retirement plans. Is there a point where, even before this "pot" of money runs out, that I should take money from other sources?
You're quite right that I lose my flexibility at age 70 1/2. If I could have one wish granted (solely in this planning context!), it would be to empty my traditional retirement plans and after-tax plans before 70 1/2 so that my only taxable income would be social security and my pension and I would avoid most of the social security tax. I doubt that's feasible. But I do want to do whatever I can by age 70 1/2 to put myself in the best position at that point.
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On Sat, 2 Nov 2019 00:30:44 EDT, Roger Fitzsimmons wrote:

You may want to think twice about both of those.
High-income individuals pay a punitive surcharge for Medicare in the second year following. For instance, if you do a large Roth conversion in 2020, your Medicare premiums in 2022 will be increased. If you're planning to convert significant IRAs to Roths, you probably want to do it more than two years before age 65 -- in other words, pretty much now since you said you're 62.
And you probably already know that, if you expect to live past age 82, you are better off to wait till age 70 to start taking Social Security benefits.
But I'm going to suggest again -- talk to a professional about your whole retirement strategy. I know bits and pieces as they apply to me, but your situation is different and you should take my advice as worth just what it costs.
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Stan Brown, Oak Road Systems, Tompkins County, New York, USA
http://BrownMath.com/
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The Medicare Part B surcharge is only about $650 a year for incomes between $85,000 and $107,000, so if you go through that whole range it's around 3%. At my current income level, each dollar of MAGI up or down increases or decreases my Obamacare subsidy by 18%. So it would be more expensive to do it now. Obviously the Medicare Part B surcharge factors into my calculations. That's just another example of why this whole question is so complex.
The question of when to claim social security is one of the most widely mis-analyzed issues I've ever seen. One way of looking at it is that if benefits increase 8% a year and you use a discount rate of 8%, it is mathematically automatic that you should take as early as possible. My calculations are that with a 4% discount rate and options limited to claiming at 62, 64, 66.5, 68, and 70, you should claim at 62 if you will die by age 80, at 64 if you will die between 81 and 91, 68 1/2 if you will die between 92 and 96, and 70 if you will live to be at least 97. These disregard the effects of taxes, the retirement test if you claim prior to normal retirement age, and any effect of a spousal benefit.
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That seems right if your goal is to maximize the NPV of your SS payments, but that doesn't strike me as a very good metric. My goal is not to run out of money before I die, which may be a problem since my father lived to 97, so I'm inclined to postpone SS as long as I can live on my other income.
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John Levine, snipped-for-privacy@taugh.com, Primary Perpetrator of "The Internet for Dummies",
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I sort of see your point. But there's a different way of looking at it. If you claim prior to your "target" age, you can always segregate and invest the money, and then use that to supplement your benefits when you would have begun collecting them. Especially if you have heirs, that potentially leaves an increment to your estate.
In an extreme case, where you assume you can earn 8% tax-free and risk-free, you could never lose by claiming early. That's unrealistic of course but it provides a useful benchmark.
Also, the possibility of benefit cuts when the trust fund is exhausted is a wild card, and clearly beyond the scope of this post.
A counter to my point is that the increment in your benefits is in effect tax-deferred and risk-free. You won't find a risk-free investment with this kind of return.
However, the decision is closer than is made out to be by many so-called "Social Security Calculators" and heavily influenced by tax considerations, which will vary greatly from one person to another. For example, if your other taxable income is sufficiently low, you might be able to avoid taxes entirely by claiming a smaller benefit at an earlier age. (If that's because all your other money is in Roth IRA's, kudos. If that's because you have no other income or assets, sympathies.)
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I said that the point of SS is to avoid running out of money, so it makes sense to defer it as long as possible.

Not really. This situation has asymmetrical risks. If the market does well and you die young, your heirs get a slightly larger estate, which is OK. If the market tanks and you live a long time, you run out of money which is very not OK.
Hence the benchmark isn't the expected value, it's the range of values and in particular what the low side looks like, comparing the annuity from later larger Social Security to the annuity that you might get from your early claim income. Given that you're likely to be in a higher tax bracket if you claim early than you'll be when you need the money, it's hard to see how that could ever be a good bet.
The SS trust fund will indeed exhaust eventually. That was the plan since it was only a place to park extra FICA revenue during the baby boomers' prime earning years. The long-term design of SS has always been for it to pay benefits out of current revenues. The tax adjustments needed to bring them back into balance are not large, and since old people tend to vote in large numbers, I'm confident they'll happen. (And no, it's not a Ponzi plan because governments and individuals are not the same.)
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On 11/9/2019 2:15 AM, Roger Fitzsimmons wrote:

If you don't claim early, you are automatically (and with zero effort) segregating and investing your funds. The government keeps the money and eventually uses it to 'buy' you a larger Social Security benefit. Whether this is a good deal depends on how much it costs you in foregone benefits (easy to calculate) plus earnings on the foregone benefits (10 yr TIPS are 0.22% today so inflation adjusted, low-risk earnings are minimal) vs how much it would cost you to purchase on your own the incremental Social Security equivalent benefits. At it's most basic, the Social Security retirement benefit is an inflation indexed immediate annuity. The inflation indexed part is valuable and difficult and/or expensive to duplicate outside of Social Security. Every time I have priced out buying an inflation indexed annuity at age 70 that would bring my Full Retirement Age SS benefit up to the age 70 level, it cost more than the SS benefits + earnings I would have accumulated by claiming at FRA. Wait until age 70 to claim SS benefits has always been the conclusion.
If you die before claiming, your heirs will get the other assets you didn't have time to spend and they will get their inheritance much sooner than expected. Their disappointment in your sub-optimal Social Security claiming strategy is likely to non-existent or minimal - and you won't be around to care. If you delay claiming and live a very long time, the larger Social Security payments will make the likelihood of eventually having inadequate financial resources and becoming a burden on your heirs lower. To me, the qualitative risk/reward on when to claim SS benefits also seems skewed toward claiming at age 70.

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I don't mean to prolong this and expand beyond a reasonable scope. I'd simply make the points that:
a) You must consider time value of money and taxes when choosing when to claim SS benefits; and b) Many SS calculators that are out there (including, for example, the one on the Fidelity Investments website and, I think, one affiliated with Quicken) fail to reflect time value of money. Reflecting taxes is probably too complicated to expect.
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