Retirement Planner social security question

[Cameron Henneke]

I'm working through the Retirement Planner with the hopes of getting a good plan in place soon.

In the Additional Monthly Retirement Income section and I saw the help tip about getting my social security estimate from their website.

First of all, what a great tip!  I didn't know this was possible and now I've signed up for my online account with SSA and will check it periodically.  (This might be worth calling out somewhere more visible since it's applicable to most people - I felt lucky to stumble across it!)

So now I have my estimate, but I'm hoping to retire before my benefits will start. Is there a way I can indicate in the planner that this additional income won't start until age 67 (or maybe 62 if I take it early)?  

[Ryan Lillis]

Hi there. Great feedback!

As of now, there's no way to indicate the point you will start receiving an income source after your retirement has started. But it's a great idea and certainly something we could consider building in.

What we might suggest is this:

1. On Step 1, enter your estimated Social Security income based on the estimate from SSA.gov.
2. Go to Step 3 (Summary) and compare your three Nest Egg Needs Numbers (low, medium, high).
3. Then, in the Experimentation Box, deselect your Social Security income and notice how your three Nest Egg Needs Numbers change. Then, experiment again by selecting the Social Security income box, but enter a different and lower value for the income. Note again how the Nest Egg Needs values change.

If it were me, I'd probably either reduce the estimated benefit I was expecting - which is a simple way to effectively approximate the fact that you won't be getting the benefit for a portion of your retirement - or just drop the number to $0. Given that you mentioned you want to retire early, that means you plan to spend more time than a typical person does in your retirement years. More time means more uncertainty and that means it's better to be conservative in your estimates (i.e. aim for a higher nest egg need number).

Either way, hopefully what the exercise above does for you is give you a rough idea of the range you should be shooting for. Keep in mind that we built the tool around the concept that planning for your retirement nest egg need is an imperfect science. Regular refinement of your nest egg need number based on minimal inputs - particularly if you're still many years from retirement - is likely to be better than a calculation based on detailed inputs done once many years or decades before you actually retire. And, if you work with a Certified Financial Planner, you'll get a good sense of how their estimate aligns with the MoneySwell Retirement Planner estimate and can factor that in as you make updates along the way.

[Cameron Henneke]

Thanks, Ryan.  That explanation and advice is really helpful!  I've started experimenting in Step 3 to see how things play out with different scenarios.

I have a related question for back in Step 1:

I have an investment portfolio that is NOT a retirement account - it's not an IRA - just stocks and bonds I've bought over the years.  While the portfolio doesn't receive any retirement tax benefits, I do plan on living off dividends and proceeds from this portfolio during retirement.  Right now I have the portfolio labeled as "Other Investment".   Should I just go ahead and list it as a "retirement" account in MoneySwell since I will be using that money for retirement?  Or do you recommend I leave it as "Other Investment" and then add another line in "Additional Monthly Retirement Income" with an estimate of how much I will withdraw from the portfolio? (I'd probably follow the 4% rule for my calculation).

[Ryan Lillis]

Hi Cameron. Great question! The short answer is, yes, just label it as "Retirement" since you plan on using that money for retirement income and want it to be factored into your portfolio.

The slightly longer answer is that MoneySwell generally isn't considering the detailed tax implications of your retirement accounts. For example, a Roth IRA can provide tax-free income in retirement, whereas a traditional IRA/401k will have that income taxed. But MoneySwell doesn't take that into account. Even though this wasn't really your question, what this means is that if a person has a bunch of tax-free income, MoneySwell is probably going to estimate they need to save a little more than they actually do because our methodology assumes your income will be taxed. In that sense, our tool is making a conservative estimate by telling the user he or she needs to save more than they actually might need to.