One topic I write very infrequently about is Social Security. As someone who retired before my 50th birthday, it has always been something that seems too far off. Recently at an update with our financial advisor, we talked a bit about the timeline that Social Security is structured around.
62 is the earliest age at which one can take a Social Security benefit and almost half of people start drawing from it at that age. That’s probably not too surprising given that many people are ‘forced’ into retirement because of health issues or a lay off.
By taking Social Security sooner, participants that are my age would be giving up 30% of their potential benefit instead of waiting until the full retirement age of 67. That’s a loss of about 6.7% a year – which is a terrific investment return. After age 67 – up to age 70 – seniors can get about an 8% annual return if they continue waiting.
Since Social Security represents more than 50% of most people’s income in retirement (it’s 90% or more for 35%), perhaps putting off Social Security would never work. If you’ve been a good saver on your own, however the 8 years from age 62 to 70 become very lucrative and you could wind up with a benefit that is almost 2x what others are collecting.
For us, these decisions are still a decade away, but our plan calls for delaying Social Security (and my MegaCorp pension) for as long as possible. That seems the best approach to maximize our nest egg in retirement.
I’ll also note that I do NOT think that Social Security is going to collapse or go away. While it currently has a sizable unfunded liability, that simply requires a once in a generation ‘fix’ as was done during the Reagan administration. It would be political suicide for anyone in Washington DC to mess with the benefits of the program. (Change my mind if you don’t agree!)
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