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A personal story – I’m not advocating anything.. Well, I take that back, I think Dr. Quinn is spot-on when he says you should begin benefits when you need them and the heck with the fancy math.
I’m 66, wifey is 65. She’s never worked since our marriage 42 years ago.. Well, I take that back, that woman has out worked me beyond measure. 5 Children. Homeschooling. The youngest is now 30. 9 Grandchildren. Threats of more. Yikes.
Just out of school I was pessimistic enough to believe SS/Medicare was a pure tax that I’d never see a revenue stream from. I love it when I’m wrong, which makes me a consistently happy person. I built retirement around that thought, so reasonably maximizing SS benefits at this point is my goal. FRA yields a tad less than waiting to 70 for me. So what. It’ll be fun starting benefits next year. (Fun is an emotion. It’s still legal.)
My background is all about the time value of money, but applying it to SS benefits is tough. You just don’t know when you’re gonna go see Elizabeth. I’m guessing 83 since that’s when my Dad died and 95 for wifey. Her family is unreasonable.
The Fancy Graph (you can enlarge it and download it).
Of course I calculated Present Value anyway. 4% Discount rate. COLA average for SS benefits over the last 10 years is about 3%, so is my estimate of inflation. A wash. 4% it is.
I also show monthly payment traces as well as cumulative traces for those payments.
I compared filing at age 62 (green), 67 (blue) and 70 (red). The vertical axis on the right with the smaller dollar amounts is for the payment traces. The vertical axis on the left with the larger dollar amounts are for the other traces (cumulative payments and present value).
Present Values were calculated by discounting all cash flows at 4% from the combined payments to myself and my wife. Then I took those PV’s at the dates corresponding to the beginning of the cash flows and let them grow at 4% to my wife’s age 95 to generate a trace. If I live to a different age than 83 or my wife at 95, these plots fall apart. Old school CIF (cash-in-fist) makes the most sense here (the cumulative traces).
My take is, make some reasonable calculations, and run with what you think is best. I chose for my wife to take SS at 65, and I waited to 70. No one can predict the future, but you still have to plan. My calculation from 1991 at age 45 was 4 times too low, compared to age 80! My final age on that chart was 88, now I use 100 and with good blessings, I just might make it. The good news is, I did better than my calculation, which was with a Vanguard tool. Of course I did a lot of calculations at age 70, and thankfully way ahead of those too. I use a 10% and 12% yearly return. Best of luck to all.
I’ve been in finance my entire career – until I retired at 67 in March. I plan to wait until 70 to take SS: 1) I already have have a pension/annuity; 2) I will “take” the guaranteed 8%/yr growth in SS and use it for worse case planning – if the market goes down “significantly”, I may then draw SS so as to remain invested and benefit from a then-higher market upside potential; 3) I don’t think politicians can politically afford to cut SS by 20%, but if they do, my check will be approx 20% higher by 70, offsetting the cut. Finally, I agree with others that this is not a (not so?) simple PV exercise. If you don’t have or haven’t bought an annuity/pension, then by all means pull the trigger and build a conservative cornerstone to your retirement income and add portfolio risk around it.
Every individual is unique. The challenge here is multi-faceted. For some, it is about maximizing present value. For others, CIF may be more about avoiding leaving money on the table. (Never heard of “Cash in Fist” before).
Myself, we had unique issues (GPO, significant differences in worker and spouse life expectancy, working past SSFRA, etc.),
To me, the two most important considerations about Social Security claiming (among many other concerns and considerations):
First, in the past, few people did exactly what you did, seriously consider the different options, including not only “present value”, but how you planned to use the money after commencement, other risks of claiming and deferred claiming, and
Second, how Social Security is the only “annuity” available which provides guaranteed, inflation indexed income and a surviving spouse benefit.
The first item didn’t happen for many Americans in the past (and even today) because they were unable to continue employment (involuntary job loss, illness, care giver, etc.) and they arrived at older age having failed to save enough or secure other sources of income (pension, self-employment income, business ownership, etc.) And, until a decade or so ago, the claiming rules allowed you to start and stop and restart.
The second item is for those who have saved, but whose monthly income is not sufficient to cover everyday expenses. It allows individuals to consider using accumulated assets to buy a SS “annuity” by creating an income “bridge” to deferred claiming, whether to SSFRA or to age 70. That strategy allows for more aggressive investing of other assets not used for income replacement and it may be the most effective option for minimizing the risk of a reduced standard of living throughout retirement (especially where inflation rears its ugly head after retirement).
One wise sage once told me if you take the time to be informed, “you never make a wrong decision”. Sometime in the future, circumstance/fate may suggest you could have done better had you made different choices (Oh! I coulda had a V-8!).
But, whatever you chose after informed deliberation, the option you selected was always, always the right one based on what you knew, when.
Finally, a recent study just released suggests that there is added value to be gotten by acknowledging and accepting behavioral preferences for early claiming, even at age 62, where the perceived value of those preferences (CIF, for example) outweight clear differences in present value.