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Social Security Timing

Social Security Timing

May 02, 2024

Most people have trouble with the idea of waiting beyond their retirement date to collect Social Security.  It is somehow troubling to have that pot of money available to you and voluntarily not tap into it.  People will make various arguments to justify taking it sooner – but will rarely run the actual math. 

Well, I had this conversation with some friends last night who were both contemplating retirement.  They were completely befuddled when I proposed that most people are better off waiting as long as possible to collect.  I acknowledge that the math is a little different for everyone, and there are many factors including taxes, survivor benefits, impact on other retirement strategies such as Roth conversions which can impact the decision.  After all, this is why we do financial planning – it’d always complicated!   But at a basic level the underlying math surrounding when to take Social Security really isn’t hard. 

Inspired by that conversation, I built a nice simple spreadsheet tool to compare collecting Social Security at full retirement age vs. waiting until age 70.  Unlike most such tools you find on the internet, this one also considers the impact on your investment portfolio of delaying your benefits.  After all, if you defer payments, you will likely need to dip into your investments in order to pay for your expenses.  So just looking at the impact on your total benefits is only half the story. 

The tool considers the impacts of both expected portfolio return and inflation – both of which impact your decision.  As you can see below, the impact in the first few years is negative.  This is the obvious result – you have less money coming in, so your portfolio depletes to make up for the missing Social Security income.  But once you start collecting the larger benefits, the reverse is true.  Your need to withdraw from investments is lower, for the rest of your life, than if you had started collecting at 67.  For most people, with reasonable assumptions regarding inflation and investment returns, the breakeven point is achieved somewhere around age 80 to 82.  If you live longer than that, you would be better off delaying payments.  I am posting the output of a sample case below.

The results from this analysis are not surprising to me.  It is what I have come to expect from years of creating financial plans and helping clients make their own decisions regarding social security.  But it is still and interesting standalone analysis.   If you would like me to send you the spreadsheet tool to play around with, just send me an email.  

Initial Nest Egg

1000000

 

 

 

 

Annual COLA

3%

 

 

 

 

Investment Growth:

5%

 

 

 

 

Initial Annual Benefit (67):

36000

 

 

 

 

 

Collect at 67

Collect at 70

 

 

Age

Annual SS Benefit

Investment Balance

Annual SS Benefit

Investment Balance

Advantage of Waiting

 

67

36,000

1,050,000

0

1,014,000

-36,000

 

68

37,080

1,102,500

0

1,027,620

-74,880

 

69

38,192

1,157,625

0

1,040,809

-116,816

 

70

39,338

1,215,506

$50,243

1,103,754

-111,753

 

71

40,518

1,276,282

51,750

1,170,173

-106,109

 

72

41,734

1,340,096

53,302

1,240,250

-99,845

 

73

42,986

1,407,100

54,902

1,314,178

-92,922

 

74

44,275

1,477,455

56,549

1,392,160

-85,295

 

75

45,604

1,551,328

58,245

1,474,410

-76,918

 

76

46,972

1,628,895

59,992

1,561,151

-67,744

 

77

48,381

1,710,339

61,792

1,652,620

-57,720

 

78

49,832

1,795,856

63,646

1,749,064

-46,792

 

79

51,327

1,885,649

65,555

1,850,745

-34,904

 

80

52,867

1,979,932

67,522

1,957,937

-21,994

 

81

54,453

2,078,928

69,548

2,070,929

-7,999

 

82

56,087

2,182,875

71,634

2,190,022

7,148

 

83

57,769

2,292,018

73,783

2,315,537

23,519

 

84

59,503

2,406,619

75,997

2,447,808

41,189

 

85

61,288

2,526,950

78,277

2,587,188

60,237

 

86

63,126

2,653,298

80,625

2,734,046

80,748

 

87

65,020

2,785,963

83,044

2,888,771

102,809

 

88

66,971

2,925,261

85,535

3,051,774

126,513

 

89

68,980

3,071,524

88,101

3,223,484

151,960

 

90

71,049

3,225,100

90,744

3,404,353

179,253

 

91

73,181

3,386,355

93,466

3,594,856

208,501

 

92

75,376

3,555,673

96,270

3,795,493

239,821

 

93

77,637

3,733,456

99,158

4,006,789

273,333

 

94

79,966

3,920,129

102,133

4,229,295

309,166

 

95

82,365

4,116,136

105,197

4,463,592

347,456

 

96

84,836

4,321,942

108,353

4,710,288

388,346

 

97

87,381

4,538,039

111,604

4,970,025

431,985

 

Total: 

1,800,096

2,156,966

 

 

 

 

 

 

 

 

Notes:

Investment balance assumes that investor needs to withdraw or save the difference between the two benefits each year

Does not consider other potential costs/benefits including:

Impact of added income on IRMA (Medicare Part B Premiums)

Survivor benefit to spouse

Spousal benefits

Taxes on investment withdrawals or SS benefits

Impact on state / federal tax bracket

Impact on state retirement income tax exclusion

Impact on Required Min Distributions