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Social Security Breakeven Dates

#1
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.
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#2
Outstanding information! How hard would it be for you to run through these calcs again while taking spousal benefits into consideration (assume spouse is the same age). Since spousal benefits do not increase due to delayed retirement credits past FRA, that was a huge consideration for me. I would love to be able to check my xls against your tables.
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#3
What is the significance of the yellow rows and columns, and what is special about the red numbers at the intersection of the yellows?
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#4
(11-22-2018, 12:14 AM)Rhythmkats Wrote: What is the significance of the yellow rows and columns, and what is special about the red numbers at the intersection of the yellows?

The yellow and red correspond to the example worked at the bottom.

(11-21-2018, 06:12 PM)hodedofme Wrote: Outstanding information!  How hard would it be for you to run through these calcs again while taking spousal benefits into consideration (assume spouse is the same age).  Since spousal benefits do not increase due to delayed retirement credits past FRA, that was a huge consideration for me.  I would love to be able to check my xls against your tables.

Regarding spousal benefits, Social Security describes how they work here: Benefits for Spouseswhich has a calculator for estimating benefits and which reads in part:

QUOTE:

A spouse can choose to retire as early as age 62, but doing so may result in a benefit as little as 32.5 percent of the worker's primary insurance amount. A spousal benefit is reduced 25/36 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.

For a spouse who is not entitled to benefits on his or her own earnings record, this reduction factor is applied to the base spousal benefit, which is 50 percent of the worker's primary insurance amount. For example, if the worker's primary insurance amount is $1,600 and the worker's spouse chooses to begin receiving benefits 36 months before his or her normal retirement age, we first take 50 percent of $1,600 to get an $800 base spousal benefit. Then we compute the reduction factor, which is 36 times 25/36 of one percent, or 25 percent. Applying a 25 percent reduction to the $800 amount gives a spousal benefit of $600. Thus, in this case, the final spousal benefit is 37.5 percent of the primary insurance amount.

 
UNQUOTE:

So, when a Spouse reaches their own FRA, they may get 50% of the other spouse's Primary Insurance Amount (even if that other spouse has not yet reached FRA).  Above FRA, they get no more than that 50%.  Three years before their FRA, they get as little as 37.5%. At 59 months before FRA, they get 32.708%.

Here are the corresponding tables for a retiree plus spouse who have exactly the same birthday and for which one spouse is claiming spousal benefits.  So, at FRA, the benefit is 150% of the retiree's PIA benefit (100% for the retiree and 50% for the spouse).  At 59 months before FRA, the benefit is 103.125% (70.417% for the retiree and 32.708% for the spouse).
 

RETIREE PLUS SPOUSE OF SAME AGE
0% REAL RETURN
   

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RETIREE PLUS SPOUSE OF SAME AGE
2% REAL RETURN
   


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RETIREE PLUS SPOUSE OF SAME AGE
4% REAL RETURN
   



********************************************************************************************************************
RETIREE PLUS SPOUSE OF SAME AGE
6% REAL RETURN
   

Where it says "#NUM!", you can go on forever, but it is never going to be better to take the later alternative.
 
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You did not exactly ask, but here are the corresponding tables for Spousal Benefits ONLY.
 
SPOUSAL BENEFITS ONLY
0% REAL RETURN
   

********************************************************************************************************************
SPOUSAL BENEFITS ONLY
2% REAL RETURN
   

********************************************************************************************************************

SPOUSAL BENEFITS ONLY
4% REAL RETURN
   

********************************************************************************************************************
SPOUSAL BENEFITS ONLY
6% REAL RETURN
   
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#5
Systems101 thank you so much for re-running your tables to include spousal benefits.  This was great confirmation that I had not screwed something up in my calculations.  At 0% and 2% returns I got exactly the same break-even ages that you did (age 88 at 0%, and age 94 at 2%).  I feel even more comfortable that I made the best decision for us to begin benefits this year at FRA.  Thanks again!
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#6
Thanks.
I am pressed for time now but this info is very useful.
My spouse is 3 and 1/2 yrs younger than me.I will reach my FRA in Aug.2019.
My spouse worked before and has at least 40 credits but has not worked I n past 10 years.
My SS benefits will be higher.
What strategy would work better for me?
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#7
(12-01-2018, 03:37 AM)norabird Wrote: Thanks.
I am pressed for time now but this info is very useful.
My spouse is 3 and 1/2 yrs younger than me.I will reach my FRA in Aug.2019.
My spouse worked before and has at least 40 credits but has not worked I n past 10 years.
My SS benefits will be higher.
What strategy would work better for me?

I am not sure what is best for you.  It will depend on your expected longevity among other factors.  It sounds like your spouse may not be entitled to very much based on his/her own record, but I do not know that for certain.  If she/he is not entitled to very much on her own record, then his/her "spousal" benefits - up to 50% of your FRA benefit - is available to him/her once he/she reaches his/her FRA, provided you are also collecting at that time. If he/she collects earlier, it is reduced. See: https://www.ssa.gov/OACT/quickcalc/spouse.html
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#8
@Systems101
Man, I'm impressed by your research!  When I took SS in 2012, I just looked at how much I might make by leaving money invested in the IRA to the same degree I took from SS, over 10 years. Based on average historical returns over 30 years, I came out way ahead, allowing Uncle Sam to pay mortgage insurance, home and auto,  and utilities every month since. Break even? I have no idea, but it doesn't matter because I don't know when I'll die, but am certain that the estate keeps growing for the benefit of heirs.
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#9
MrRichLife - Please keep in mind that if your money is in a traditional (tax-deferred) IRA, your heirs will have to pay income taxes at their rates on whatever they inherit from your IRA.

If you are now in a lower tax bracket than your heirs, you might consider converting it to a Roth, paying the taxes on it, and your heirs will inherit everything in your Roth.
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