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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MrFireStation 
Awesome post. I have been doubtful that social security will be there for me when I’m eligible for it in 25 years, though I think they will change the minimum age to collect social security to 65. I have not included it in my retirement planning and it will be a wonderful surprise if it’s still around, but I sure do hope you’re right.
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I thought the same thing for many years. Our FIRE lifestyle doesn’t count on it, but the older I get, I see what a political impossibility it will be to end it.
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Good article with solid logic about when to start pulling from Social Security. I agree a number of folks can’t wait until either 67 or 70. Where I differ is the long prospect of getting the full Social Security “promise.” Although there’s a political price, it would not surprise me to see the program adjusted in the future. I think there will be “means” testing tied to the program, with a number of people receiving a reduced payment and or a flattening of the payment amounts based on an individual’s financial situation. There are many Baby Boomers with no or very little socked away for retirement. They out number those who are prepared. In an era of “government should pay for everything” something has to give – Social Security and Medicare are both on shaky financial footings. Fixes mean more taxes on those working – the Millennial generation is facing a labor market on a global scale the Boomers never faced. More taxes means less consumption. Less consumption means fewer jobs. Fewer jobs doesn’t equal higher tax base. I think people need to watch closely what the government proposes are start asking SERIOUSLY who is going to pay for this.
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Good thoughts. The politically ‘easiest’ solve for SSI is to simply raise taxes slightly or stretch out the full retirement age. That’s what they did in 1983. The easiest way to raise taxes might be to remove the current cap $128K income cap. Any other solution will run into the politically dangerous “cutting benefits to seniors” obstacle. Even if they are wealthy seniors, they are America’s best organized & most likely to vote ‘victim group’.
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Great post. I have never taken social security into consideration when planning for retirement. I have always assumed there is a possibility it will not exist at all or at least in its current fashion by the time we are eligible to take it. That said, if and when we are eligible we will take whatever we can get and adjust our monthly draw accordingly.
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That’s the right way to play it. Not everyone can make retirement work without SSI, but we all take a risk counting on it.
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