Social Security - Age 62 versus age 70

[MarkR]

We’ve discussed the Social Security thing quite a bit here over the years. I think, by restating the basic facts, perhaps a better understanding of it can be had by all of us. For this post, I will use the maximum social security amounts, and will ignore inflation indexing (I think the analysis makes no difference either way, because all the numbers, including deferred numbers are indexed using the same inflation number). And it all boils down to two types of annuities.

The literal choice that people have to make beginning at age 62 is to choose to receive one of the following two options:

1. An 8-year immediate annuity of $2,831 per month beginning at age 62.
   OR
2. A lifetime annuity of $2,277 beginning at age 70 and ending at death.

Much of the conversation has been around “being able to spend more at age 62” by taking social security early. And with just a first order look at the numbers, that sounds like it makers sense. But does it really? I don’t think so. You need to also look at the risk-adjusted numbers. Let’s say that someone needs a minimum of $5000 a month to live in retirement (obviously everyone has some minimum number that they can use). So, if social security after age 70 can provide as much as you need to support yourself, or even provide a substantial part of it, then you can spend ALL (or most) of your saved money between age 62 and 70. First you need to cover the $2,831 that you won’t be receiving from social security, but everything else can be spent on additional “fun”.

Yes, if you die at age 80, you will have received less from social security in total by taking at age 70 instead of at age 62. However, if you took at age 62, you would have had to save a lot more to cover all the expenses after age 70. And, yes, you die with more savings, but that’s not the stated goal. The stated goal is to be able to spend more between age 62 and age 70 when you are still strong and vibrant. Even if you end up receiving less from social security, by taking at age 70, you still end up living better in retirement!

(I have to go to gym now because they close in a hour, but I may edit this some more later.)

Back from the gym. Here’s the chart I meant to add.

[Leap1]

@MarkR

• An 8-year immediate annuity of $2,831 per month beginning at age 62.
  OR
• A lifetime annuity of $2,277 beginning at age 70 and ending at death.

Are these numbers backwards?

[buynholdisdead]

@MarkR

• An 8-year immediate annuity of $2,831 per month beginning at age 62.
  OR
• A lifetime annuity of $2,277 beginning at age 70 and ending at death.

Ok I realize and you do to that you have your numbers transposed. So at 62 you get $2,277 dollars, so that is $27,234 dollars. Now if you take that money and invest it at a compound rate of 9%, that has been what the S&P index has made in the last 30 years. You would have at 70 years old $313,579. At a 4 % interest rate you would then receive 12,543 dollars which would come out to $1045 dollars a month + $2277 = $3322 a year. So do you want $3322 a year or $2831 a year? I know you said you would have more to spend but I think the relevant question is will you spend it? Some people would say no they would not spend a dime because they have enough. So then the question comes down to where you get the most money. You get 1% more a year by putting it into an index fund rather than have it in Social Security. Plus you have the money in hand, they can’t take it away from you.

[Leap1]

I do not look at the numbers in any such manner.

My odds of living to 90 are high. Both my parents are getting past their mid 80s. That is 20 years of collecting past age 70. That is 10 years in my 70s where I am as active as most 60 year olds.

I won’t risk living 28 years at a lower rate. Mom did that and regrets it entirely.

adding another bit of math

My income is okay. My savings is okay. But neither are much to write home about.

I may be adding $10k to $18k in print sales per month to my income. Suddenly I have seven years of topping out my income until age 70 without punching a clock.

If you did not have to go into work to earn a living you would not retire early.

Plus if the game I develop takes off even as a small success, I might uproot myself and buy a property in Dublin. My retirement savings would be substantially more. Not worth figuring any numbers at this point but it is all upside. Again no punching a clock.

[PucksFool]

The only way to know when to take Social Security is to know when you will die.

[steve203]

@MarkR

(I have to go to gym now because they close in a hour, but I may edit this some more later.)

I take a two mile walk around the 'hood on weekdays. No membership charge. Got a bonus today. A guy walking his dog came the other way. The dog came over to inspect me. When the inspection was done, I scratched her head and chin, until her human dragged her away from me.

Steve

[WendyBG]

@MarkR I suggest that you add columns showing the cumulative total of each option. Then tell us the breakeven age at which the cumulative total of the options are equal.

In our case, the breakeven age was in the 80s. (I think age 83 when I did it.) Considering that both my parents died around age 70 and I’m already a cancer survivor (not counting my heart problem which I didn’t know about at the time) and that my husband was a 50 pack-year smoker whose father (also a smoker) died at age 65… taking Social Security at age 62 seemed like the correct option since neither of us is likely to see age 80.

This is why the right answer depends on life expectancy, as @PucksFool said.

Wendy

[syke6]

@buynholdisdead

Now if you take that money and invest it at a compound rate of 9%, that has been what the S&P index has made in the last 30 years.

But that 9% isn’t guaranteed, and that’s the whole problem. There have been a number of 8 years periods when the S&P 500 has been negative or had close to no return. One from 2001-09. Not that long ago.

A particularly bad one was from 1973 to 1981 when not only was the stock market negative, there was high inflation as well. The nest egg you were hoping for wouldn’t have been there.

[syke6]

@WendyBG

@MarkR I suggest that you add columns showing the cumulative total of each option. Then tell us the breakeven age at which the cumulative total of the options are equal.

It is about 81-ish for everybody. But if I may, the point here isn’t about the breakeven date. The point is in this example delaying allows you to pull spending from the future into the present. To put it another way, you don’t have to wait until 70 to spend the increase you get by delaying.

There are some personal things to consider like life expectancy and how big, if any, inheritance you want to leave. You can run simulations of the delay vs. early calculation in cFIREsim and FIRECALC. In my case, delaying allows me to spend more in the early part of my retirement, which I likely want to spend more. Nothing’s guaranteed but I see no reason to bet against myself.

[buynholdisdead]

@syke6

But that 9% isn’t guaranteed, and that’s the whole problem.

I thought about that too but is social security guaranteed? If they cut Social Security all the calculations go right out the window. This all is based on inputs that are not guaranteed. Life span, Social Security, Compounding. It all is a guess that everyone is hoping that they get right. The best guarantee is that you do not need it and then does it really matter when you take it?

[MarkR]

@Leap1

Are these numbers backwards?

@buynholdisdead

Ok I realize and you do to that you have your numbers transposed.

The numbers are NOT transposed. But to understand why they are not transposed it is important to understand what each of the numbers represent. The only relevant numbers for this purpose is the column labeled “Difference”.

The number “2831” represents the amount of additional money you will receive each month from age 62 to age 70. In essence, and in reality, an immediate annuity paying out over 8 years. This is the first case.

The number “2277” represents the amount of additional money you will receive each month from age 70 until death. In essence, and in reality, a lifetime annuity that begins paying out at age 70 and ends at death. And this is the second case.

@WendyBG

Then tell us the breakeven age at which the cumulative total of the options are equal.

The breakeven has been calculated many times before, and it comes to somewhere between age 80 to 83 depending on your assumptions of interest rates and average returns. But that isn’t the purpose of this post. The purpose of this post is to show that the social security choice really does boil down to choosing one of two annuity choices being offered to you by the social security administration.

From all those previous conversations, all of us agree that if your personal life expectancy is 80 or under, then it makes sense to take social security as early as possible. The case we are discussing here is a person that has:

1. Higher than adequate retirement savings.
2. Average health for a person of higher income that has higher than adequate retirement savings. People in this group tend to be healthier, and tend to have better medical care. And they tend to live a few years longer than average.

The case of a person without adequate retirement savings is a case in which they may HAVE TO take social security at age 62 in order to survive. If they can’t work anymore, then they don’t have a choice. But we are talking about people who DO have a choice.

Here’s the chart with cumulative added, but not taking into account the time value of money. Maybe I’ll add that later. But since all these numbers inherently get adjusted by inflation, they won’t shift all that much (though they will shift somewhat depending on assumptions).

@syke6

But that 9% isn’t guaranteed, and that’s the whole problem.

That’s not quite the “whole” problem, but it’s part of it. The main point is that if someone offers you an annuity that is inflation adjusted, and gains by 8% a year (waiting from 62 to 70), and is guaranteed by the FF&C of the US, AND has zero fees, you would surely take it. If an insurance company offered that to me right now, I would immediately put a million or two or three into it and have it begin paying at age 70. Then I can spend ALL my remaining money, I can do more stuff, I can give more to my kids, etc. Because between social security and that generous annuity, both indexed to inflation, I won’t need anything else after age 70. But no insurance company in their right mind offers such a thing, only social security offers it, and they limit the “amount you can put in” to about $250k.

@syke6

and how big, if any, inheritance you want to leave.

This is absolutely true. I’ve always found it interesting how so many of the popular folks here on this board have no children. And among the others, most people have very few children. I think I may be the only active participant with 5 children.

[Leap1]

If the do not punch in businesses throw off income in my 70s this is a silly discusssion for such prospects.

But ownership of the trade site for third party sellers will change

[intercst]

@buynholdisdead

I thought about that too but is social security guaranteed?

Politicians who vote to cut SS are voted out in the next election. That’s why it’s the “Third Rail of Politics”.

intercst

[intercst]

@MarkR

That’s not quite the “whole” problem, but it’s part of it. The main point is that if someone offers you an annuity that is inflation adjusted, and gains by 8% a year (waiting from 62 to 70), and is guaranteed by the FF&C of the US, AND has zero fees, you would surely take it. If an insurance company offered that to me right now, I would immediately put a million or two or three into it and have it begin paying at age 70.

Bingo! That’s what people don’t understand. Waiting until age 70 is like buying an inflation-adjusted life annuity from Prudential at 30%-40% off the current price (i.e. premium charged)

If the US Treasury suddenly started selling i-bonds or TIPS for 30%-off, I’d put a million into that.

intercst

[buynholdisdead]

@intercst

Politicians who vote to cut SS are voted out in the next election. That’s why it’s the “Third Rail of Politics”.

I thought that about Medicare and Medicade also, yet…
Here’s how the OBBBA is reported to impact Medicare:

• Mandatory sequestration: The bill is projected to increase the debt, triggering automatic across-the-board spending cuts (sequestration) to certain mandatory programs, including Medicare. The Congressional Budget Office (CBO) estimates this would result in nearly $500 billion in Medicare cuts from 2027 to 2034. For fiscal year 2026, the cuts are estimated to be around $45 billion.

When you are running a cult anything is possible.

[syke6]

@intercst

Politicians who vote to cut SS are voted out in the next election. That’s why it’s the “Third Rail of Politics”.

Bold of you to assume we’ll be having elections in the future.

[intercst]

@buynholdisdead

The Congressional Budget Office (CBO) estimates this would result in nearly $500 billion in Medicare cuts from 2027 to 2034. For fiscal year 2026, the cuts are estimated to be around $45 billion.

You can be sure that there will ads pointing that out during the 2026 Election in every Congressional District where the incumbent voted for it.

Granny Off the Cliff

intercst

[buynholdisdead]

@intercst

You can be sure that there will ads pointing that out during the 2026 Election in every Congressional District where the incumbent voted for it.

Yep we can only hope there is an excorcism.

The Exorcist (1973) Priest scene part 2 (1080p HD)

[PucksFool]

Many of the most draconian cuts don’t take effect until after the 2026 elections.