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The 12-year current-dollar break-even point is between 62 and 66. It's not hard to figure. If you take benefits at age 62, you get four years at 75 while the guy who waits until 66 gets four years of nothing. The age-62 guy has an early lead of 300. But starting at age 66, the guy who took early benefits still gets his 75 per year, while the guy who waited gets 100. At 25 per year, it will take 12 years for the guy who waited to catch up and offset the original deficit of 300. That's all these numbers measure, and it may not be everything. Meanwhile, the break-even point for waiting from 62 to 70 is about 10½ years (deficit of 600 made up at a rate of 132-75=57 per year), and for waiting from 66 to 70, its is 12½ years (deficiit of 400 made up at a rate of 132-100=32 per year).
It's important to note of course that this isn't an either/or choice between 62 and 66 or 66 and 70. Once you reach 62, you can start receiving benefits anytime you want. If it's between 62 and 66, you'll receive an increase of about half a percent in your benefit for each month beyond 62 you waited. If you wait beyond 66, you'll earn an increase of two-thirds of a percent per month.
In the big picture, it comes down to how badly you need the money right now versus how long you expect to live. And btw, spousal benefits are defined in the law -- you don't get to "manipulate" them.
Last edited by oaktonite; 06-06-2013 at 06:44 AM..
As stated by several posters, it is a case by case choice. Our choice was to take it at 62, while we are physically able to do the things we want. AFA SS COLA, who knows if we will get any. With our pensions, SS and our health we are enjoying our retirement now, without touching our investments. In our case, later on, physically we will probably slow up and our needs will be less.
You'll continue to get SS COLA's unless and until Congress adopts the "stab them in the back" school of thought. Those COLA's are based on changes in the average July-September CPI-W from one year to the next. There was a huge COLA in January 2009 because of the spike in gas and related prices in the summer of 2008. That spike and the effects of the ensuing Great Recession meant there were no overall price increases to adjust for in January 2010 or 2011. In fact, the relevant average CPI-W values had declined. In the summer of 2011, the CPI-W finally exceeded its levels from the summer of 2008, so there was a small COLA in January 2012. This will continue subject to any backstabber success in driving that car into the ditch as well.
As a general rule, don't take SS until you need to or age 70, whichever comes first. The chief advantages of SS are that it is COLA-protected and that you can never outlive it. Both those benefits are magnified by waiting. You get a 25% bonus (1.56% per quarter) added to your monthly benefit if you can wait from 62 until 66, then a 32% bonus (2% per quarter) if you can wait from 66 until 70. Once earned, those bonus amounts affect spousal survivor benefits as well.
The problem with general rules of course is that they don't apply in a lot of specific situations. So put some time into understanding your personal circumstances, then decide what would be best for you given those.
Which is why I will attempt to wait to age 70 (5 more years).
The 12-year current-dollar break-even point is between 62 and 66. It's not hard to figure. If you take benefits at age 62, you get four years at 75 while the guy who waits until 66 gets four years of nothing. The age-62 guy has an early lead of 300. But starting at age 66, the guy who took early benefits still gets his 75 per year, while the guy who waited gets 100. At 25 per year, it will take 12 years for the guy who waited to catch up and offset the original deficit of 300. That's all these numbers measure, and it may not be everything. Meanwhile, the break-even point for waiting from 62 to 70 is about 10½ years (deficit of 600 made up at a rate of 132-75=57 per year), and for waiting from 66 to 70, its is 12½ years (deficiit of 400 made up at a rate of 132-100=32 per year).
It's important to note of course that this isn't an either/or choice between 62 and 66 or 66 and 70. Once you reach 62, you can start receiving benefits anytime you want. If it's between 62 and 66, you'll receive an increase of about half a percent in your benefit for each month beyond 62 you waited. If you wait beyond 66, you'll earn an increase of two-thirds of a percent per month.
In the big picture, it comes down to how badly you need the money right now versus how long you expect to live. And btw, spousal benefits are defined in the law -- you don't get to "manipulate" them.
In reference to the part above that I bold faced:
My point was there is such a thing as opportunity cost.
Assuming you have no pension, but a 401K and choose to retire at age 62...if you wait until age 70 instead of age 62 to start collecting, then you are dipping into your 401K for all of your expenses...for 8 years. If your investments in the 401K grow over the course of the 8 years...then your true break even point would certainly not be at age 80 and a half as you say...it would be even further out.
The 401K must be factored in to get the true picture...the break even point could even be 30 years or more as I illustrated with a mere 7% growth rate in a 401K.
The 401K must be factored in to get the true picture...the break even point could even be 30 years or more as I illustrated with a mere 7% growth rate in a 401K.
Each person should take his or her own individual circumstances into account in making all sorts of financial decisions. Rather a number of people were forced through being thrown out of their jobs into takling SS at 62 when they had never planned or wanted to simply in order to have a check coming in each month. Circumstances can do that. The SS break-even points are pieces of information. Plug them into your own circumstances and see what turns up.
The notion of a "mere" 7% alternative earning rate is grossly unrealistic by the way.
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