11-21-2018, 03:57 PM
There are some reasonably good Social Security Optimizers available online (e.g., https://opensocialsecurity.com/[/url] (free) or [url=maximizemysocialsecurity.com]When Should I Take Social Security to Maximize My Benefits? | Maximize My Social Security (paid)), but I thought it might be useful to look at how long it takes to break-even if you claim at one point versus another under several assumptions regarding the value of money. The calculations can be a bit complex and the and the answer is not as good as you might get from an optmizer that might consider additional factors. Nevertheless, it might be of interest.
The general rules for claiming early or late from social security are given by Social Security which has a calculator to determine the impact at various ages. The earliest you can generally claim is one month after turning 62 and the latest that makes any sense is Age 70 (because you just lose benefits if you claim after that date). This link reads in part:
QUOTE
In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
UNQUOTE
For anyone born after 1942, claiming later than normal/full retirement age increases benefits by 8% per year until Age 70.
The normal (or full) retirement age varies by year of birth .For someone born in 1960+, their FRA is 67 and they can claim as early as 62 years and one month or 59 months before Full Retirement Age, FRA. For someone born in 1943-1954, their FRA is 66 and they can claim as early as 47 months before FRA.
Likewise, someone born in 1943-1954 can claim as late as Age 70, or 48 months after FRA, while someone born in 1960 should claim no later than 36 months after FRA to get maximum monthly benefits. (For those born in 1955 - 1959, the months are in-between).
You can set up an account with Social Security here: my Social Security | Social Security Administration and see your earnings history and
estimated benefits. (If you have years with multiple W-2's they often make mistakes and omit one of the two. It is worth checking)
With the above as background/reference, I looked at the break-even dates for various claiming strategies for those born in 1943 and later. In these cases, I am looking at REAL dollars net of inflation. It is easier to look at things that way. So, when thinking about the results, the time value of money is based on REAL returns net of inflation. For example, if the time value of money is based on fixed income, perhaps the interest rate is 3% and inflation is 2%, for a real return of 1%. Or, if the time value money is based on equities returning 8% (through dividends and growth) and inflation is again 2%, the the real return is 6%. Most experts recommend using a low number like 1% or 2%, although some people feel that the social security income allows them to keep invested in equities and therefore warrants a higher rate.
Following are the results, first for a 0% real rate of return:
A 2% Return Case (Remember Natural Logarithms?):
A 4% Return Case:
A 6% Return Case:
Note that there may be other factors than expected longevity in making a decision as to when to claim. The above may look complicated, but it really provides a simplistic answer.
The general rules for claiming early or late from social security are given by Social Security which has a calculator to determine the impact at various ages. The earliest you can generally claim is one month after turning 62 and the latest that makes any sense is Age 70 (because you just lose benefits if you claim after that date). This link reads in part:
QUOTE
In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
UNQUOTE
For anyone born after 1942, claiming later than normal/full retirement age increases benefits by 8% per year until Age 70.
The normal (or full) retirement age varies by year of birth .For someone born in 1960+, their FRA is 67 and they can claim as early as 62 years and one month or 59 months before Full Retirement Age, FRA. For someone born in 1943-1954, their FRA is 66 and they can claim as early as 47 months before FRA.
Likewise, someone born in 1943-1954 can claim as late as Age 70, or 48 months after FRA, while someone born in 1960 should claim no later than 36 months after FRA to get maximum monthly benefits. (For those born in 1955 - 1959, the months are in-between).
You can set up an account with Social Security here: my Social Security | Social Security Administration and see your earnings history and
estimated benefits. (If you have years with multiple W-2's they often make mistakes and omit one of the two. It is worth checking)
With the above as background/reference, I looked at the break-even dates for various claiming strategies for those born in 1943 and later. In these cases, I am looking at REAL dollars net of inflation. It is easier to look at things that way. So, when thinking about the results, the time value of money is based on REAL returns net of inflation. For example, if the time value of money is based on fixed income, perhaps the interest rate is 3% and inflation is 2%, for a real return of 1%. Or, if the time value money is based on equities returning 8% (through dividends and growth) and inflation is again 2%, the the real return is 6%. Most experts recommend using a low number like 1% or 2%, although some people feel that the social security income allows them to keep invested in equities and therefore warrants a higher rate.
Following are the results, first for a 0% real rate of return:
A 2% Return Case (Remember Natural Logarithms?):
A 4% Return Case:
A 6% Return Case:
Note that there may be other factors than expected longevity in making a decision as to when to claim. The above may look complicated, but it really provides a simplistic answer.