Please send me to other post(s) that have already answered this question if you know of any.The one true answer starts with "It depends...."
Due to the numbers of boomers retiring over the next decade, articles on "gaming" SS have proliferated across the web and finance magazines. Everyone wants to be told what the "best" SS withdrawal strategy is. The fact is, the age you decide to draw is a tradeoff, plain and simple. More money now when you are healthier, or more money later when you are less likely to be able to "enjoy" it, and also more likely to be dead. For folks that are prepared for retirement, I say take it at 62.
The "early retirement" age reduction you mention would not be your only concern when deciding to take benefits at 62, especially if you don't actually plan to stop working. There is also an earnings limitation that applies to benefits prior to full retirement age (FRA). For 2014, that limit is $15,480.00. 50% of any earnings in excess of that limit will be withheld from benefits. For example, if you earned $25,480.00 in 2014, you would have $10,000 in excess earnings, so $5,000.00 (50% of the excess) will be withheld from benefits paid in 2014. That coupled with the age reduction can really limit benefits payable. Keep in mind, however, that any month you do not receive a full benefit due to work withholding will be credited once you reach FRA.
However, that only applies to earnings through work or self employment. Income from other sources (retirement accounts, investment returns, pension payments, etc) safe from consideration. So, if you have retired early, the earnings limit may not have an impact on you.
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At age 62, he could however go in and "file and suspend" his benefit, establishing the filing date, but turning off all payments and allowing the amounts to continue to grow.
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By accepting Social Security five years early, you secure about 3 years of total retirement pension (after adjusting for the 25% discount and the discount rate above). This means that it will take over 12 years (closer to 14 to 15) before accepting at 67 'breaks even' with 62. In other words, you'll be in or near your 80's by the time this happens.
That doesn't include the fact that you could invest some of the money you receive for the 60 months prior to 67) when you assume an interest rate and some kind of investment return on the amounts received by filing at age 62, the breakeven age gets pushed farther and farther to the point where if you could earn 6% on funds received by starting benefits at age 62 you would never catch up if you waited until age 66.
The "breakeven" analysis between starting SS at 62 and waiting until age 66 works out to be somewhere around age 80. (I have done this but can't remember the exact breakeven age). Personally, my biggest fear (risk) is running out of money at a very old age, so my plan is to wait until age 70 to collect SS which will maximize my cost of living forever annuity.
The tricky part of this analysis (as the op has actually noticed:QuoteThat doesn't include the fact that you could invest some of the money you receive for the 60 months prior to 67) when you assume an interest rate and some kind of investment return on the amounts received by filing at age 62, the breakeven age gets pushed farther and farther to the point where if you could earn 6% on funds received by starting benefits at age 62 you would never catch up if you waited until age 66.
I still plan to wait until age 70, but the decision is not a simple or obvious one.
The "breakeven" analysis between starting SS at 62 and waiting until age 66 works out to be somewhere around age 80. (I have done this but can't remember the exact breakeven age). Personally, my biggest fear (risk) is running out of money at a very old age, so my plan is to wait until age 70 to collect SS which will maximize my cost of living forever annuity.
The tricky part of this analysis (as the op has actually noticed:QuoteThat doesn't include the fact that you could invest some of the money you receive for the 60 months prior to 67) when you assume an interest rate and some kind of investment return on the amounts received by filing at age 62, the breakeven age gets pushed farther and farther to the point where if you could earn 6% on funds received by starting benefits at age 62 you would never catch up if you waited until age 66.
I still plan to wait until age 70, but the decision is not a simple or obvious one.
This is very true - and something to factor into the analysis. However, the most important part is to use something called an Actuarial Present Value (APV) in doing this calculation, as investment rates of return aren't sufficient to derive which opportunity is better. The APV takes mortality statistics into account in your specific circumstance (i.e. date of birth, valuation date, and expected rate of return on funds) and discounts the annuity accordingly.
These types of calculations are frequently used in income and pension loss tort litigation proceedings as it provides a more accurate reflection of probability versus a standard present value calculation..
Is there any benefit to waiting until 63, 64, or 65? I always see that you get a 8 percent increase for each year after full retirement age, but what about the years between 62 and full retirement age? In my case, I plan to be retired already by 62 so I won't be increasing my benefit simply by replacing lower income years with higher income years.
Thank you, professor. I get that. So it's not so much increasing your benefit as it is reducing the reductions between 62 and, in my case, 67.
M o n t h l y A m o u n t
1000 1080 1166 1259 1360 1469 1586 1713 1850
Age 62 63 64 65 66 67 68 69 70
62 12000
63 24000 12960
64 36000 25920 13992
65 48000 38880 27984 15108
66 60000 51840 41976 30216 16320
67 72000 64800 55968 45324 32640 17628
68 84000 77760 69960 60432 48960 35256 19032
69 96000 90720 83952 75540 65280 52884 38064 20556
70 108000 103680 97944 90648 81600 70512 57096 41112 22200
71 120000 116640 111936 105756 97920 88140 76128 61668 44400
72 132000 129600 125928 120864 114240 105768 95160 82224 66600
73 144000 142560 139920 135972 130560 123396 114192 102780 88800
74 156000 155520 153912 151080 146880 141024 133224 123336 111000
75 168480 167904 166188 163200 158652 152256 143892 133200
76 181896 181296 179520 176280 171288 164448 155400
77 196404 195840 193908 190320 185004 177600
78 212160 211536 209352 205560 199800
79 229164 228384 226116 222000
80 247416 246672 244200
81 267228 266400
82 288600
83 310800
84 333000
85 355200
86 377400
87 399600
88 421800
89 444000
1844 1991 2150 2322 2508 2698 2913 3146 3357
62 63 64 65 66 67 68 69 70
62 22128
63 44256 23892
64 66384 47784 25800
65 88512 71676 51600 27864
66 110640 95568 77400 55728 30096
67 132768 119460 103200 83592 60192 32376
68 154896 143352 129000 111456 90288 64752 34956
69 177024 167244 154800 139320 120384 97128 69912 37752
70 199152 191136 180600 167184 150480 129504 104868 75504 40284
71 221280 215028 206400 195048 180576 161880 139824 113256 80568
72 243408 238920 232200 222912 210672 194256 174780 151008 120852
73 265536 262812 258000 250776 240768 226632 209736 188760 161136
74 287664 286704 283800 278640 270864 259008 244692 226512 201420
75 310596 309600 306504 300960 291384 279648 264264 241704
76 335400 334368 331056 323760 314604 302016 281988
77 362232 361152 356136 349560 339768 322272
78 391248 388512 384516 377520 362556
79 421344 420888 419472 415272 402840
80 454428 453024 443124
81 490776 483408
82 528528 523692
83 566280 563976
84 604260
85 644544
86 684828
87 725112
88 765396
89 805680
Here are some simple SS payout guesstimates
When the total at starting age x is less than total at starting
age x+1, the total at age x no longer prints.
M o n t h l y A m o u n t
1000 1080 1166 1259 1360 1469 1586 1713 1850
Age 62 63 64 65 66 67 68 69 70
62 12000
63 24000 12960
64 36000 25920 13992
65 48000 38880 27984 15108
66 60000 51840 41976 30216 16320
67 72000 64800 55968 45324 32640 17628
68 84000 77760 69960 60432 48960 35256 19032
69 96000 90720 83952 75540 65280 52884 38064 20556
70 108000 103680 97944 90648 81600 70512 57096 41112 22200
71 120000 116640 111936 105756 97920 88140 76128 61668 44400
72 132000 129600 125928 120864 114240 105768 95160 82224 66600
73 144000 142560 139920 135972 130560 123396 114192 102780 88800
74 156000 155520 153912 151080 146880 141024 133224 123336 111000