This should be so simple but for some reason I cannot wrap my head around the formula to make this calculation:
A person has two options:
Begin collecting payments of $577 per month now or…
Waiting 4 years from now and receive $757 per month.
If the person opted to wait 4 years before collecting, how many months would it take to offset the $27,696 which the person would have received during the first 4 years?
Would this be correct?
$757 - $577= $180 (difference)
They’re going to gain $180 per month but they’ve already missed out on 48 months. The $577 is roughly $180 x 3, so for each month they missed out on, it’s going to take them 3+ months to make up.
They missed out on 48 months, so it’ll take a bit more than 48 x 3 = 144 months to catch up.
Would also depend on the age of the person.
If he was 55 now then the break even age would be 55+4+12.8 or 71.8 years old.
If he was 60 breakeven age would be 76.8.
65 would be 81.8
70 would be 85.8
If he expects to live long after beginning to receive payments waiting does have an advantage.
My wife and I have and are going through these calculation now. I have retired at 66 last year. She will retire in December and is almost 64. She has 75% survivors benefit on my retirement. She will taking 100% of her retirement with no survivor benefit. We also took out a 20 year term policy for her.
It was really strange doing these calculations. Normally when you take out insurance the discussion is if you die. But this time it was when either I or she die. And trying to calculate the best guess as to when that might be. Not just if but it is going to happen.
Right. But if this calculation is about Social Security, the payment in four years is adjusted for cost of living increases, and thus the break even point will be sooner.
If it is not then the break even point will be later.
When I reached retirement age, then 65, I opted to defer my state pension. I was able to do that because I kept on working and already had another pension.
The benefit of deferring was that they added 10% to the basic pension for each year deferred. My calculation was that if I waited three years, it would take about 15 years to recover my investment, compared with taking the cash and putting it in savings.
Like most of these calculations, much depends on life expectancy which, of course is a lottery. My parents and grandparents all lived to a good age so I took the gamble.
This is about social security and it is all a big crap shoot anyway. I have another pension which causes me to fall into the “windfall elimination provision” so I am going to receive only 65% of what I actually earned. I am 62 now so if I began receiving $577 per month now it would take me almost 13 years to reach the point where I would be “losing” money. That is, if my calculations are correct. A lot can happen in that time