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Deciding Whether to Take Early Social Security?

Your last Social Security statement contained three key numbers that you may still not know which is best to pick. One number was the benefit amount you will receive at age 62; the second was your benefit amount at your normal retirement age and the third was the amount you will receive if you work until age 70. While there are a number of factors that can affect both the final amount of your benefits and when you should begin taking them, the possibility of coming out ahead by simply investing the money should be examined. If you begin taking early or even normal distributions and invest them, chances are you will come out ahead of where you’ll be if you choose to wait. The following table breaks this down clearly:

Cash flow comparison of Social Security benefits, assuming life expectancy to age 90

Monthly amount of monthly Social Security benefits received Total lifetime Social Security benefits received until age 85 (based on life expectancy per IRS pub. 590) Total amount accrued at the end of growth period to age 70, assuming 9% annual rate of growth Total amount of payout from growth portfolio over 15 years, assuming 9% fixed payout
Age 62 – $ 973/mo $268,548 Approx. $136,080 $183,708
Age 66- $1367/mo $311,676 Approx. $ 78,630 $106,151
Age 70- $1898/mo $341,640 $ 0 $ 0

However, the information in table 1 is not final, as the amounts from column II and IV must be combined in order to arrive at the correct final comparison. Taxes are not taken into consideration here either, but those who are eligible to make Roth IRA contributions will come out much further ahead of those who cannot.

Monthly amount of monthly Social Security benefits received Total amount accrued at the end of growth period to age 70, assuming 9% annual rate of growth1 Total amount of payout from growth portfolio over subsequent 15 years, assuming 9% fixed payout Final total combined amount received including investment proceeds to age 85
Age 62-$ 973/mo $136,080 Approx. $183,708 Approx. $319,788
Age 66-$1367/mo $ 78,630 Approx. $106,151 Approx. $390,306
Age 70-$1898/mo $ 0 $ 0 Approx. $341,640

Remember, while the differences in cash flow from the tables above may not seem that large, the growth scenarios at age 62 and 66 produce approximate liquid assets of $136,000 and $78,000, respectively. These are available to the participant for any reason at any time, such as to pay off a mortgage. (Of course, liquidating this balance will have an effect on the amount of benefits ultimately realized.)

Comments (2)
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  1. Gail said:
    on April 28th at 12:01 pm

    1-Where will one get a risk free 9% return? These numbers are unrealistic.
    2-90 is an above average life span.

  2. Mark Cussen said:
    on April 28th at 12:14 pm

    I am simply assuming a hypothetical 9% return for the purpose of the example. There would of course be risk involved in that level of return; I was thinking primarily of historical long-term stock returns when I chose that rate. I also used age 90 because a growing number of people are living that long, even if it is still above the average. Of course, if you die sooner, then you will not need as much money, and you would probably invest your funds in something safer, but then you would get a correspondingly lower rate for a lesser period of time.