As a married couple approaching traditional retirement age, we recently made the decision to take Social Security at age 62. We know there are as many ways to consider this decision as there are days in a year. And many experts advise against taking Social Security "early" so that you get a bigger check at full retirement age. It's hard to argue against that.
However, we have always lived an unconventional lifestyle. We retired in 1991 at the age of 38 and have lived and traveled all around the world since then. Therefore the fact that so many experts agree on waiting for payment gives us pause for thought. Here is our logic.
First, the S&P 500 index has averaged returns of more than 8% per year, plus dividends, since we retired in 1991. If we take Social Security early and invest it, we won't be losing the extra 8% in benefits we could get for every year we delayed receiving them. Granted, the benefits of delaying Social Security are guaranteed, while stock market returns are not. The markets could go up, down, or sideways -- no one knows.
But we have lived off of our investments for the last 24 years, through good times and bad, and we could easily make it another four if necessary, so investing the monthly check is definitely an option. More likely, we will allow our cash to grow while we look for opportunities to deploy it in the market. Plus we would have control of the money, adding to our net worth.
Next let's look at some numbers
For easy math, say at 62 you are set to receive $1,000 per month in benefits. If you wait until you are 66, your payment will be $1,360. Sounds great, right? However, you would have missed receiving $48,000 dollars in payments from the previous 48 months. How long is it before you make that money back? Using this example, it would take 133 months, or a little over 11 years, meaning we wouldn't break even until age 77. In that time frame, the Social Security we began receiving at age 62, plus our investments, should grow enough to easily surpass the additional money received by waiting.
For some people, deferring until their full retirement age -- or even later -- could make sense, especially if they do not have the assets to support themselves, have difficulty handling money, or are still working. However, this is not our situation, and therefore we have decided to take the money and run.
It's really a question of who you think can handle your money better -- you or Uncle Sam?