Great article David, another perspective to consider. We're fortunate, my wife and I are diligent savers & investors, and both have retirement annuities with a cost-of-living adjustment (COLA) feature, which should cover our future needs. My wife is eligible for SS, so I did an analysis, looking at it from an investment perspective as to whether she should take it at ages 62, 67 or 70. SS provides a monthly benefit estimates for these 3 ages. I assumed her monthly benefits (reduced by our tax rate) would be directly invested in a Total Stock Market Index ETF and assumed a 5% annual return. I also assumed the SS benefits would increase annually by a 1.5% COLA. The results are as follows: Starting the benefit at age 67 instead of 62, the break-even age would be 92. Starting at 70, the break-even age would be 93. I also reduced the annual return to 3.8%, to account for a lower return and/or for taxes paid on the investment income. At 67 and 70, the break-even age would be 87 and 89,respectively. Obviously the assumptions have a big impact on the results. Other considerations in taking the benefit sooner are our joint income will increase which has the potential to increase my Medicare income related monthly adjustment amount (IRMAA) and hers at a later date. By delaying the benefit, the increased income will be received as we start taking IRA RMDs and as our tax deferred I-bonds mature. So what will we do? At this point she's inclined to start the benefit at 62. But due to the complexity, many moving parts and unknowns (future income, investment returns, tax rates and longevity), basing a decision purely on an analysis is difficult. Fortunately, our quality of life doesn't depend on getting this decision exactly right for the highest lifetime payout. Maybe she'll just flip a coin, but how may flips?
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Great article David, another perspective to consider. We're fortunate, my wife and I are diligent savers & investors, and both have retirement annuities with a cost-of-living adjustment (COLA) feature, which should cover our future needs. My wife is eligible for SS, so I did an analysis, looking at it from an investment perspective as to whether she should take it at ages 62, 67 or 70. SS provides a monthly benefit estimates for these 3 ages. I assumed her monthly benefits (reduced by our tax rate) would be directly invested in a Total Stock Market Index ETF and assumed a 5% annual return. I also assumed the SS benefits would increase annually by a 1.5% COLA. The results are as follows: Starting the benefit at age 67 instead of 62, the break-even age would be 92. Starting at 70, the break-even age would be 93. I also reduced the annual return to 3.8%, to account for a lower return and/or for taxes paid on the investment income. At 67 and 70, the break-even age would be 87 and 89,respectively. Obviously the assumptions have a big impact on the results. Other considerations in taking the benefit sooner are our joint income will increase which has the potential to increase my Medicare income related monthly adjustment amount (IRMAA) and hers at a later date. By delaying the benefit, the increased income will be received as we start taking IRA RMDs and as our tax deferred I-bonds mature. So what will we do? At this point she's inclined to start the benefit at 62. But due to the complexity, many moving parts and unknowns (future income, investment returns, tax rates and longevity), basing a decision purely on an analysis is difficult. Fortunately, our quality of life doesn't depend on getting this decision exactly right for the highest lifetime payout. Maybe she'll just flip a coin, but how may flips?
Post: Covering the Basics
Link to comment from March 22, 2023