I just calculated that my first 12 months of Social Security payments at age 70 is equal to 86% of my lifetime FICA taxes. And that’s after paying very little into the program over the past 30 years. Many people don’t realize that if you happen to quit working once you reach the 2nd bend point of the AIME calculation, you get 77% of the maximum Social Security monthly benefit while paying about half the FICA taxes. There’s not much of a penalty for having a decade or two of zeros in your Earnings Record. Someone earning a max-FICA income from their mid-to-late 20’s would reach the 2nd bend point around age 45. It’s just arithmetic.
You can cut that 86% in half if you include the employer’s contribution. But of course, there’s no guaranty that if SS was dropped, that your boss would increase your pay by the amount of FICA taxes saved. The savings is just as likely to go towards excessive Executive Compensation.
I have taught my godchildren the lesson to work extremely on something “hard” that increases your salary value, that you love, and then to use that to snag a job with significant salary, and then while still youngish to go into private business. (I became a consultant).
You do not even have to do the tax math. Being your own boss is mostly a really good thing, but it is a tough jump from college to success as an entrepreneur for most people.
Absolutely! Not everyone wants to be a business owner. But you don’t have start a business, invent something, or do anything special. Merely preventing yourself from getting financially screwed is enough to do it for you.
The way I explain it to people.
"What if I told you you could go to engineering school, never attend a class or crack a book, and still get a lifetime income equal to or exceeding 95% of your classmates? Would you take that bet?
That’s what capturing the “skim-free”, 20-fold, 30-year return on the S&P 500 will do for you – because almost everyone else is doing something worse."
Yes, that is the crux move — not surrendering to default getting hooked into the modern indentured slavery fantasies e.g.
watch…car…jewel… will get me more sex status relaxation I need!! Worth it!
My tax investment advisor is a professional who would never lie to nor mislead me! I mean, he is a professional!
A couple takes SS at 62. By the time they turn 70-1/2, they will have drawn over $320,000 from SS. That’s money they didn’t have to draw from IRAs. At 5% interest that’s an additional 16k in income each year. And more important than anything else, it’s a fair amount of money that they can leave to their heirs.
It’s not entirely (or even mostly) wrong - it just ignores that risk that you will live past 70 (the 1/2 isn’t relevant - perhaps you were thinking of the old RMD age?).
If you turn on SS at 62, you will get about $100,000 less in income, not accounting for any COL adjustments, if you live into your late 80s. The breakeven age is between 79 and 82*.
You would actually end up with more, on average, to leave to your heirs if you delayed as you could turn off spending your retirement money at age 70 and let that compound over the remaining years (or spend it on more travel).
There are likely dozens if not hundreds of sites out there that will elaborate on this subject, as well as help you do the math.
Bottom line, if you plan to die at 70, take it early. If you plan to die in your 80s or later, delay is likely your best option.
It makes a huge difference over the decades. Each dollar contributed back in your 20s is worth about $4.50 now (assuming you are now 70). The correction factor for your 30s would be about 2.5x.
As Hawkwin explains, if you delay SS to age 70, you can actually spend more money at age 62, not less That’s because as you age you’ll have an increasing larger SS check and smaller portfolio withdrawals. It’s about a $100,000 benefit if you’re single, $200,000 for a married couple. If you have a non-working spouse who paid very little into SS, the extra $100,000 is a complete “gift” courtesy of the taxpayers.
Sure. But it’s a tax that I had to pay. What’s my return on the trillions of dollars we’ve incinerated in the Middle East over my working and early retirement career?
The only thing I know for sure is that if I went to a for-profit insurer to buy an inflation adjusted life annuity with a monthly benefit equal to the 75% increase I’m getting for waiting the 8 years from age 62 to 70, they’d be charging me 50% more than my cost for waiting.
I figured my break even age at about 86. And what would I do with the extra money in my 90s, when I no longer have the strength and stamina to do the things I have been doing for the last dozen years?
For a couple, the optimal solution may be (is likely to be) for the lower earning spouse to take benefits at 62 and the higher earning spouse to take benefits at 70+ rather than both taking at the same age. That’s the way my wife and I are handling it.
I understand the breakeven age. I believe mine was 78.
But if I keep the $320,00 that I saved by taking SS early, invest it at 5%, that is going to be $160,000 in investment earnings by the time I and the spouse reach 80. That’s 40k less than the 200k (100k x 2) that you mentioned. My $160,000 doesn’t include any compounding and it also assumes that 5% is all I’ll earn. Typically my investments do better than 5%. So the difference will be less than 40k.
I’m just not seeing the disadvantage of taking SS early.
You need to have some understanding of actuarial science and the benefit of a steadily increasing inflation-adjusted pension vs. drawing on an investment portfolio with variable returns – that’s why math majors get the big bucks if they go into insurance.
I’ve had two 50%+ declines in my net worth since I retired in 1994. The 2000 dot-com crash, and the 2008 home mortgage collapse. But It didn’t bother me because I have faith in the long term upward trend of equity markets and I generally kept 10-years worth of living expenses in cash & fixed income. Once I start SS in about a year, I’ll be reducing that “cash & fixed income allocation” and put more into BRK.
Behavior economists call this the “Annuity Puzzle”
And the cheapest inflation-adjusted annuity one can “buy” is the one that the Federal Gov’t will “sell” you by waiting from age 62 to 70 before starting Social Security.
If you retire at 62, you will need a source of income. If that isn’t the $2600 a month (average SS benefit at 62 x2) you are getting from SS, then you are having to spend your retirement dollars, that otherwise would be invested at that proverbial 5% or better.
But let’s assume you can save every dollar of SS at 62 because you are meeting all of your income needs from a pension and no need to withdraw from other retirement savings.
$2600 month, compounding annually at 5% would be $308,000 in 8 years. Of that $308,000, the interest is only $56,000, not $160,000.
Then we will face a depression unlike any of us have likely experienced.
There are over 70 million Americans on Social Security. Of that 70 million, 28 million of them have social security as their sole source of income. For over 35 million, it is greater than 50% of their income.
I don’t think there is any way those benefits are being cut. We will increase the deficit and the debt without hesitation of the alternative is to reduce SS checks.
