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Do the Social Security math

By Jennie L. Phipps ·
Wednesday, August 21, 2013
Posted: 3 pm ET

In response to a retirement planning blog I wrote on my 62nd birthday saying that I wasn't going to take Social Security until I'm older, Abe responded with his rationale for taking his benefits as soon as he could.

Abe provided some numbers in his post. He said:

"My Social Security at age 62 was $1,650 per month, for a total payout of $79,200 to age 66 (full retirement age). By waiting to age 66, I would have to live to age 78 to break even on return of cash, without any interest. By waiting, I am really buying an annuity with close to a zero rate of return. Actually, it's much worse than that, in that none of my payouts in this 'annuity' created by waiting are guaranteed or insured. For example, if I died at age 66, I would have lost the entire $79,200 that I gave up. Even if I make it into my 80s, I still have an annuity with an interest payout at close to zero, as my contributions from age 62 to 66 would have gone 20 years without a dime of interest being paid. By waiting from 62 to 66 you are buying the rawest deal in annuities ever invented."

Is there a 'right' time?

There is no right or wrong Social Security strategy. When to take it is a very personal decision, but there are some basic assumptions worth considering that argue for delay in Abe's example.

Using the free AARP Social Security calculator, if Abe turned 62 this year, and he were entitled to $1,650, then working backward, his benefit at 66 would be $2,195 per month, plus the cumulative cost-of-living adjustments, or COLAs. By waiting until age 70, his benefit would be $2,897 per month, plus the cumulative COLAs.

I have access to Social Security Planner, software that allows purchasers to estimate the value of a Social Security benefit in various ways. I added a 2 percent COLA to Abe's benefit and calculated the difference between the amount he would get if he claimed at 62 and what he would receive at age 66, full retirement age for him, and age 70, assuming that he would live no longer than an estimated life expectancy of 84, which the Social Security Administration and the U.S. Census say is average.

  • If he claims $1,650 at 62, with a 2 percent average COLA, he would get a total of $559,040 by the time he reached 84.
  • If he claims at full retirement age, 66, with a 2 percent average COLA, he would get a total of $620,958 by age 84.
  • If he waited until age 70, given the same circumstances, by age 84, he would have received a total of $666,840.

In this scenario, the difference between claiming at 70 and claiming at 62 is $107,800. Plus, the longer Abe lives, the more attractive delaying a claim becomes.

If Abe were married -- or even divorced after 10 years of marriage -- the claiming strategies open to him are more numerous. For instance, if he waits until age 66, he can claim a spousal-only benefit based on his current or former spouse's income (as long as he remains single) and let his own benefit increase until age 70. That strategy could increase his total return significantly.

The bottom line: Deciding when to take Social Security isn't a slam-dunk. Taking it at 62 is rarely the smartest strategy if you are able to continue working and you have every reason to believe you'll live an average or longer lifespan.

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August 07, 2014 at 10:14 pm

To Selena
When your wonderful president came to office, he had both house and senate that were democrats. Please libs, don't talk, you show your ignorance.

July 31, 2014 at 2:16 pm

The only thing I would ask you to consider is how much money you would have to take out of your investment accounts (IRSs, etc) to make up the difference in what you need to cover your living expenses between 62 and 66 or 70? In other words if you are already retired and don't wish (or are unable) to continue working that $1650/month would probably have to come from savings or investments and you would lose any earnings those might possibly have realized by living on those funds instead of taking what Social Security funds are available at 62?

Selena Case
June 19, 2014 at 9:43 pm

Do people who live on a disability income collect any other income from Social Security say 7 years before they turn 62 or after that age.

Selena Case
June 19, 2014 at 9:32 pm

Why put the blame on one man when the country was bleeding before he took office and when he did, the House of Representatives, Congress was always saying no and still is saying no.

April 09, 2014 at 1:03 pm

I have a retirement benefit that I am collecting from a public employment fund. I am also 62 and can collect ss. My question is does it make sense for me to keep working or retire. My existing benefit is over the allowed income. I will get a penalty already for having this benefit and my taxes are getting way out of hand. also the problem of insurance that I would lose from my existing job. No one else has asked this or have they ?

September 01, 2013 at 6:30 pm

Wrestling with this issue now. Buried in the fine print of it plainly says that the payout is calculated in such a way that regardless of when you take the annuity you will most likely receive the same amount by the time you die. Therein lies the finality of it all. Most importantly, none of us can plan on that specific date. If cashflow is the main concern as we enter retirement, then plan on the INcome instead of the IFcome. Anything else is smoke and mirrors. The arithmetic is simple. Leaning towards taking the money now, while I am healthy enough to enjoy it. A few hundred more a month downstream, when I could be incapacitated or worse, makes that money useless.

September 01, 2013 at 6:15 pm

I have a question.
My spouse who has had a very low income over the years started collecting this year. I am only 62. I will have a parttime military retirement, a state school retirement, a 401k, plus some investments.
How will these things affect my Social Security income? Will I still get the full amount that I have worked hard to achieve?

August 24, 2013 at 9:22 pm

"I would have to live to age 78 to break even on return of cash, without any interest."

It's about time someone realized this.

"Plus, the longer Abe lives, the more attractive delaying a claim becomes."

But Abe doesn't live. He dies. What now, genius???

"The bottom line: Deciding when to take Social Security isn't a slam-dunk."

Of course it is. Social Security may not even be around if Abe supposedly gets to 80 years.

The real bottom line: take the money while you can.

August 23, 2013 at 5:15 pm

can the "spousal-only benefit" technique be started at age 62 then convert to own benefit at 66?

jane smith
August 22, 2013 at 7:38 am

I think to take the SS early has both pro and con. Remember you have to pay back part of your SS money if you exceed the income level. If you are single and has family history of decease in young age, you also has no other additional income like pension or investment, you should take SS as early as possible. You need to do the math in considering the tax impact too. There are no one size fit all people .