What the government and most financial planners neglect to include in their calculations is the time value of money. This is something that is real, and must be included in your calculations or your results will be meaningless.
In my case I did a spreadsheet with the following assumptions:
1. I was fully retired at 64. No earned income past that point. Age 62 should give similar results, but the calculations might change slightly.
2. Income tax on benefits was not considered. Too many variables to include this in the calculations.
3. SS payments from 64 to 66 (my full retirement age) were saved and invested in an account. Investment returns of 0% (checking account), 3% (bond funds) and 8% (estimated average index fund return) were calculated.
4. After age 66 funds were drawn out of the account monthly in the amount that SS payments were reduced by taking it early. I believe I used a 16% reduction in benefits (slightly higher than the actual reduction) assumption.
I'm having to use a questionable memory, but from what I recall, with no investment income the "checking account" was zeroed out at around 83 years of age. This would be the break even point without considering the time value of money. A "bond fund" account ran out of money around 87 years of age. The account that averaged 8% returns never ran out of money, and would grow as long as i lived.
So what did I do? I'm 68 and still haven't started collecting on my earnings history. In my case, I considered I may predecease my spouse, and I wanted the higher spousal benefits available to her by my delaying to 70. This outweighed my conclusion that overall I'd have more money by taking SS early and investing in S&P 500 index funds. I am able to currently draw much reduced benefits based upon my spouse's earnings while mine grow, but that loophole has been eliminated and can't be factored into your decision.
Other considerations:
1. You get a cost of living adjustment that applies to your total SS payment. Favors holding off.
2. If you are married, are the higher income spouse, and will likely be outlived, favors holding off.
3. If you will spend the early payments and not invest them, and depend on SS as your main source of income in retirement, you are generally better off waiting as long as you can up to 70.
4. If you think politicans won't fix the shortfall and benefits will be reduced then you might want to take it early. I did not factor this into my decision.
5. If you delay you probably will pay income taxes on more of your SS payments. I've mitigated that by rolling over IRA/401k funds into a Roth IRA between age 64 and 70, reducing that tax impact.
Edit: In a post above IRA/401k minimum distributions are mentioned at age 70.5. For individuals turning that age in 2020 and later that was just changed by the Secure Act to 72 years old.
In my case I did a spreadsheet with the following assumptions:
1. I was fully retired at 64. No earned income past that point. Age 62 should give similar results, but the calculations might change slightly.
2. Income tax on benefits was not considered. Too many variables to include this in the calculations.
3. SS payments from 64 to 66 (my full retirement age) were saved and invested in an account. Investment returns of 0% (checking account), 3% (bond funds) and 8% (estimated average index fund return) were calculated.
4. After age 66 funds were drawn out of the account monthly in the amount that SS payments were reduced by taking it early. I believe I used a 16% reduction in benefits (slightly higher than the actual reduction) assumption.
I'm having to use a questionable memory, but from what I recall, with no investment income the "checking account" was zeroed out at around 83 years of age. This would be the break even point without considering the time value of money. A "bond fund" account ran out of money around 87 years of age. The account that averaged 8% returns never ran out of money, and would grow as long as i lived.
So what did I do? I'm 68 and still haven't started collecting on my earnings history. In my case, I considered I may predecease my spouse, and I wanted the higher spousal benefits available to her by my delaying to 70. This outweighed my conclusion that overall I'd have more money by taking SS early and investing in S&P 500 index funds. I am able to currently draw much reduced benefits based upon my spouse's earnings while mine grow, but that loophole has been eliminated and can't be factored into your decision.
Other considerations:
1. You get a cost of living adjustment that applies to your total SS payment. Favors holding off.
2. If you are married, are the higher income spouse, and will likely be outlived, favors holding off.
3. If you will spend the early payments and not invest them, and depend on SS as your main source of income in retirement, you are generally better off waiting as long as you can up to 70.
4. If you think politicans won't fix the shortfall and benefits will be reduced then you might want to take it early. I did not factor this into my decision.
5. If you delay you probably will pay income taxes on more of your SS payments. I've mitigated that by rolling over IRA/401k funds into a Roth IRA between age 64 and 70, reducing that tax impact.
Edit: In a post above IRA/401k minimum distributions are mentioned at age 70.5. For individuals turning that age in 2020 and later that was just changed by the Secure Act to 72 years old.
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