In a recent article, I noted that people can elect to start receiving their Social Security benefits at different ages, offering examples of estimated benefits taken from an actual person's Social Security report:
- At his current income level, if he stops working and starts receiving benefits at age 62, he can expect to receive around $1,215 per month.
- If he waits until age 67 (his full retirement age), he can expect $1,774.
- If he holds out until age 70, he stands to receive $2,210 monthly.
I didn't recommend choosing any particular age, noting that the right decision depends on multiple factors. A reader took issue with me, though, writing:
I've seen these examples before and often wonder why in the world I'd ever wait a day past 62 years old to start receiving my money. I did a little quick math. Assuming you live until age 75, here's the total of the payments you'd receive getting paid at the ages you reference.
The numbers are:
- 62: $189,540
- 67: $170,304
- 70: $132,600
He made a good point, and took the trouble to model the numbers. I wondered, though, what would happen with different numbers. I dusted off my spreadsheet machine and got the following totals (at 8% annual growth) for someone who lived until age 80, which is not an unreasonable expectation for many of us. (Indeed, plenty of us will live well beyond that.) Here's what I got, roughly:
- Start withdrawing at 62, and your total by age 80 will be around $604,000.
- Start withdrawing at 67, and your total by age 80 will be around $515,000.
- Start withdrawing at 70, and your total by age 80 will be around $440,000.
I was hoping to get different results, but my results echoed his. I tried it again, this time incorporating a more generous 10% return, but early withdrawals still looked like the best option.
Of course, there are still various factors to consider: your life expectancy, whether you'll be working at least part-time in your retirement, and your spouse's situation, among others. There's also the question of how much you'll really need the money at 62, compared to later ages. If putting off taking your benefit means losing your house, it's probably best not to wait. Overall, there's a good case to be made for taking your benefits early.
It can seem counterintuitive, especially when the latest payment amount is almost twice the earliest one, but do the math before you decide. In my example above, for instance, the $1,215 per month you'd get at age 62 would total $14,580 per year. So you'd have received five times that, or $72,900, by the time you hit 67. That's quite a nice head start, and it should be taken into account when comparing the $1,215 monthly payment with a $2,210 one. By age 70, you'd have received more than $115,000, which could be invested and busy working for you for years.
Just don't count solely on Social Security for your security in old age. Its payouts are not guaranteed. Be sure to take advantage of retirement plans at work, such as 401(k) plans, and also to look into opening IRA accounts. Learn more in our IRA Center.
Invest in solid growers, and your money can accumulate rather briskly. For instance, Texas Instruments
Of course, if you'd rather not try to determine which firms will do well over the coming 10 or 20 years, you can always aim for an average annual gain of around 10%, via a simple broad-market index fund. There's no shame in that.
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