I apologize if this has been posted in a previous thread, its hard to find and narrow the topic.
A recent Yahoo article talked about social security and retirement at various ages. The Perils of Retirement at Age 65
Some comments indicated it was advantageous to actually retire early (62?) with less of a monthly check, but invest it for 5 years. By the time you are 67, the investments could likely pay better.
So is this crack-pot? or actually a reasonable thought?
Additionally, lets look at a hypothetical not directly tied to SS. If I ‘retire’ at 55 with a benefit of $430/month…is that better than retiring at 60 with benefit of $1100/month? This is assuming I would invest the $500/month.
So with that in mind, and just other things in general. Is it better to retire as early as possible with the smaller amount? I recognize YMMV, but this is 'humble opinions"
I’m 62, I’ve run the numbers, and I can give you a big fat YMMV.
If I retire at 66 (my “full” benefit age) my monthly Social Secuirty benefit will be more than 20% higher than it would be if I retired today. If I wait until I’m 70 (the “maximum” benefit) it would be nearly 40% more.
That’s not just one month, that’s every month for the rest of my life. So I ran the numbers out to age 90. If I wait until age 70 to take benefits, I’ll actually receive more over 20 years, than I would total taking the reduced benefit for the next 28 years.
On the considerable other hand, my wife had another pension, so she qualified for only a minimal SS payment, with minimal appreciation. Running the numbers for her showed she was much better off taking the payment at 62.
If you took your money on May 31, 2010 and invested in stocks until May 31, 2014, you would have done very well. BUT if your time frame had been May 31, 2006 to May 31, 2010 you would have gladly taken 0% appreciation. An ethical advisor will tell you an investment <5 years should be very conservative, like AA bonds. Five year bond funds are currently stalled at around 2% interest, which is less than I’ll get waiting for my regular SS benefit.
Of course, if you’re looking at a longer time frame, investments beat Social Security in the long run. But over a 4-year span it’s not so certain.
I’ve recently looked at this, and have come to the same conclusion as kunilou. The return for waiting is pretty good and almost guaranteed. I’m going to wait until 66 at least and maybe later depending on my cash flow and when I actually retire. (I’m eligible now but am still working.)
You also have to consider your life expectancy. If your family tends to die at 67 you might want to take it early. If they tend to live into their 90s, it is better to wait.
Consider spousal benefit, too. If your spouse is 62, they can get half of what you’re eligible for, even if you don’t take it - you can file and then request a suspension of payments while they increase, while your spouse collects.
Either way, find the breakeven age (simple software, even an Excel formula), compare that to your life expectancy and income-need expectancy, and decide accordingly. And you can get hit by a bus tomorrow.
The calculation gets a little complicated then, because you lose some fraction of a dollar of SS payments for every dollar you earn, up to 50%.
One way to think of it is that your payments go up 8% for every year you wait, so if your life expectancy is not a driving factor, then you need to do better than that with your investments. You may or may not. If life expectancy is a factor, then decide if you’re going to live past the breakeven point.
I am in the age group that gets full SS at 66 and my calculations showed that taking it at 62 instead of 66 would not begin to pay more in total dollars until 78. I did not run the numbers if I waited until 70.
I started at 63, betting that by age 66 my 401k would grow more rapidly than the SS payments. Less than a year to go and it it still a good bet.
This was recently posted on reddit and is a good summary of SS (but the comments are predictably chaotic).
The OP, and the article linked to, doesn’t really tell us the full situation.
In particular, what is the story with your job???
If you can continue to work and it is paying reasonably well to overcome the “cost” of the job, then you are going to end up better off. Period.
So keep working as long as you can.
But for some people, just because you can work and it pays well enough, doesn’t mean you want to. So financial considerations are only part of the story.
Is this case a purely financial issue or not? Is the job issue a non-factor? I.e., you retire at 62 in either case and the issue is SS only. (Without affecting your health insurance status.)
There are an amazing number of complicating factors. E.g., taxes on SS. Some people’s investments make enough that taxes on SS income become a problem. (And trying to adjust things to avoid “cliffs” in the calculation is a nightmare. Trust me.)
I want to reiterate. We’re talking about someone who’s 62 years old investing in something they want to pay out when they’re 66, AND with a limited future earning potential if the investment doesn’t pay off. There are damned few things that offer any worthwhile rate of return with an acceptable risk level over a four year period.
Yeah, of someone knows an absolutely rock solid safe investment that pays 8% a year, please let us know. Screw Social Security - if I had that, I could retire today!
BUT if you don’t earn it - say its investment income, it MIGHT make sense (I sort of doubt it, but I haven’t run the numbers).
Say your 401k was sufficient for you to live on. You could start pulling social security, and invest it, while living off 401k distributions - might even make more sense if it were a Roth - you wouldn’t get taxed on the Roth or the Social Security.
As I said, I haven’t run the numbers, but I can conceive of them working out - there is a timing the market element though that if you NEEDED it to work out, wouldn’t be good. If you were padding your childrens’ inheritance - maybe.
You really do have to run the numbers for each individual.
One thing to remember though, are the actuarial tables. For example, many people at 65 think they only have 10 years to live because the average life expectancy is in the 75 year range. But a 65-year-old actually has a 50% chance of living past 80. An 80-year old has a 50% chance of making it to 90.
So you shouldn’t focus too much on the short term. Even someone at retirement age should have some long-term investments.
This article suggests that delaying collecting Social Security is, generally, worthwhile. It compare the increased Social Security payout to how much it would cost to buy an annuity that pays out the same amount.
I did the calculation for my dad once, comparing different retirement ages (62, 66, 70). I believe when comparing ages he would break even about 10~ years after taking the later age benefit. So if he compared retirement at 62 vs 70 and picked 62, he would break even in his early 80s. After that he would’ve been better off waiting to 70. The benefits of 70 vs 62 is your benefits are almost double, 66 vs 62 is about a 30-40% increase. However this simple calculation neglects factors like
What ROI can you expect from your money invested earlier
Will taking the higher benefit push you into a higher tax bracket, lowering your net income
Also I believe there is an option in SS where you can take benefits at an early age, then at a later age pay the money back you’ve taken out and then get the higher benefits. So if you retire at 62 and get 1000 a month (to make it easy) then decide at 70 you want the benefits of a 70 year old at 1800 a month, you pay the SSA 1000128=96000, then start collecting 1800 a month. I think that is how it works, I don’t know if they factor in inflation or penalties. It is something to look into if you think you can beat the market.
Just from my perspective, people over 75 (mom, aunts, uncles) spend way less than people less than 75. Quality of life has gone down significantly for the elders in my family as they aged, YMMV.
Mrsin and I both retired early. He is now getting SS at age 62. I am still 3 years too young. With his DBP and my little annuity we have not had to take a penny out of our IRA’s to fund our current living expenses that include 9 months of travel (volunteering 6 months a year with no housing expenses). We are taking the SS money now so that we can enjoy ourselves while we are still healthy.
I can understand those who can’t afford to retire putting it off. I can’t understand those that think life will be great when they are 75 if they have more dollars then.
But then again I have a brother who died at 48 and another that died at 54 so maybe my view is tainted.
is that what you are talking about? Seems everyone glossed over this but you can’t take SS until 62 as far as I know. So what benefit of $430 a month are you talking about? And the same for the $1100 at age 60?