Should You Take Social Security Early and Invest Your Benefits?

Making the right choice about when to take Social Security benefits is crucial to your financial health in retirement. But many analysts don't take some basic considerations into account when giving information about Social Security, leading to what can be misleading conclusions.

In the following slideshow, Dan Caplinger, the Motley Fool's director of investment planning, looks at how different assumptions about the returns you can earn on invested Social Security benefits can change the correct decision about whether to take benefits earlier or later than full retirement age. Most so-called breakeven analysis simply looks at total benefits paid without taking into account the potential investment income you could earn on those benefits if you invested them. In order to accurately reflect the time value of money, Dan makes some simple assumptions about reasonable returns you could earn and looks at the impact they have on breakeven analysis. Dan concludes that the greater the return you assume, the more sense it makes to take benefits earlier than later.

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Read/Post Comments (11) | Recommend This Article (12)

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  • Report this Comment On June 07, 2014, at 3:01 PM, millsbob wrote:

    someone gets it, Finally! thank you, Dan.

    the first Social Security calculator that i saw which took this into account was one which hit the NYT a few years ago. it really helped make the decision to "go early" an easy one.

    this becomes even more critical if your results as an investor are good; 5% is extremely modest. like anyone else, i've made my share of mistakes, but over the past 5.6 years, i have a cumulative AGR of 12%, so the effect is far more dramatic.

  • Report this Comment On June 07, 2014, at 9:17 PM, JimmyJamesJim wrote:

    Did the analysis also consider the effect of inflation adjustments to the SS benefit?

  • Report this Comment On June 07, 2014, at 11:53 PM, mike5196 wrote:

    One must consider the reduction in benefits for earned income prior to FRA as well.

  • Report this Comment On June 08, 2014, at 12:03 AM, sbernhar wrote:

    I ran these numbers myself, long ago. I came up with the same conclusions. I actually used a 5% discount rate, just like you did.

    I'm glad that you posted this. I wish people would actually look at the numbers instead of using their "gut feel". None of the articles until now had taken into account the investment of the social security checks. Now.....somebody is going to reply to this and say "But we are spending our social security checks". Well, if you are, then you are keeping more of your retirement money (IRA / 401K / etc. ) invested. So, the analysis is still valid.

    FYI.....inflation has no impact on this analysis since social security has a COLA. Cost of living goes security goes up. In fact, he isn't even considering the spending side of the equation. He's only looking at which option provides the most money to you. An easy way of comparing the options is to compute the "Net Present Value" (Google it). It just says how much money you'd have if you got all this money in one lump sum at the same age, regardless of which age you started your social security payments.

    OK......enough from me. Thanks for the article !

  • Report this Comment On June 08, 2014, at 5:32 AM, Tenmilesun wrote:

    If you start taking payments at age 62 and simply put the money aside until you are 66, and then withdraw just enough to make up the difference had you waited until 66 to start drawing SS, you can effectively "receive" the full benefit until the money you saved runs out. The time at which the saved cash runs out works out to a little less than your life expectancy at age 62, making your decision very close to a complete wash. This assumes that the money you set aside is invested at a rate to just keep even with the COLA increases in SS. If you assume that your investment return will beat the COLA then the money that you set aside will almost certainly outlast the point where you reach your life expectancy, and you will come out ahead.

  • Report this Comment On June 08, 2014, at 5:45 AM, JimmyJamesJim wrote:


    .inflation has no impact on this analysis since social security has a COLA. Cost of living goes security goes up.

    But the income from investing the SS checks does not have a COLA. That makes a big difference in the breakeven age.

  • Report this Comment On June 08, 2014, at 11:25 PM, sailingblue wrote:

    On top of inflation,how about the income tax on the ss benefits that you receive? And taxes on the investment return?

    And your current tax brackets and the future ones?

    I can't think anymore.

  • Report this Comment On June 09, 2014, at 8:36 AM, TMFGalagan wrote:

    @millsbob - Return assumptions obviously make a huge difference. Those who have ample assets outside SS will be happy taking more risk with the invested assets; those who don't will want to be more conservative.

    @jimmyjamesjim - Part of the reason for using a relatively low assumed investment rate is that it needs to take things like taxes and inflation into account. Taxes will differ from person to person.

    @mike5196 - Yes, obviously, if your benefits would be taken away from you due to pre-retirement-age work, then it effectively makes early SS not an option for you.


    dan (TMF Galagan)

  • Report this Comment On June 09, 2014, at 8:49 AM, Mathman6577 wrote:

    Good thought provoking article.

    Another aspect of this debate is "quality of life". I think one reason many (most?) people "take it early" is that they would rather spend the money while it can be enjoyed rather than spending it later in life when health issues could impede many activities.

  • Report this Comment On July 03, 2014, at 12:22 AM, Energo wrote:

    In my situation, assuming a 4% return on my investments, if I take Social Security at age 63, therefore, I'll take less from my investments, giving me a break even point at age 97+.

  • Report this Comment On July 13, 2014, at 8:42 PM, murphis123 wrote:

    I enjoy the concept of this article, but my numbers come out differently due to cost of living adjustments. While it's true taking SS early also gets a COLA, it doesn't get as big an adjustment because the monthly benefit is smaller. This becomes a larger factor as the years go on and the difference compounds. When I run calculations assuming a 2.8% COLA for taking at 62 vs 70, and a 5% rate of return, I come up with a break even age around 83. If I bump the rate to 6% earnings B/E is 85. Does that make sense?

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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