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EVERY FEW MONTHS, I come across yet another article claiming that delaying Social Security is like earning an 8% guaranteed return. It’s a comforting phrase—clean, simple, and easy to repeat. Unfortunately, it isn’t true.
Yes, the Social Security Administration awards an 8% delayed retirement credit for each year you postpone benefits beyond full retirement age. But that 8% is simple interest, not compound. And no matter how attractive the credit looks on the surface, it ignores an uncomfortable fact: You’re giving up three full years of monthly checks to earn it.
When we account for the actual cash flows—what we give up and what we get back—the real return looks very different.
A REAL-WORLD EXAMPLE
Take someone born in 1960 or later. Their full retirement age is 67. If they delay benefits to age 70, here’s what happens:
Suppose the age-67 benefit is $1,000 a month. Delaying means turning down $36,000 over three years (36 × $1,000). At age 70, the monthly benefit jumps to $1,240—a $240 increase.
So what’s the rate of return on the $36,000 “investment” needed to earn an extra $240 a month for life?
This is where the math tells a much quieter story than the 8% billboard slogan.
THE TRUE RATE OF RETURN
Using a basic internal rate of return (IRR) calculation—treating the skipped payments as an upfront cost and the extra income as a lifetime annuity—the result comes out to:
Approximately 5.3% to 5.5% per year, inflation-adjusted.
That’s the conclusion reached by:
Why isn’t it 8%?
Because:
Add these factors together and the real return shrinks by roughly 2.5 to 3 percentage points.
Still good? Yes. But not magical.
THE BREAK-EVEN AGE
Another way to look at the decision: When do you come out ahead?
Those ages assume today’s average life expectancy—about 84 for men and 87 for women once you’ve already reached 67.
In other words, for someone in average or better health, delaying remains a solid deal. But the real advantage depends on living long enough to enjoy it.
WHAT THIS MEANS FOR RETIREES
The truth sits somewhere between the headlines:
The decision to delay should still factor in health, longevity expectations, cash-flow needs, spousal benefits, and tax planning. But at least the math is clear: the famous 8% credit overstates the true economic return by a meaningful margin.
BOTTOM LINE
Delaying Social Security from 67 to 70 offers a real return closer to 5.3%, not 8%. That’s still a strong, inflation-adjusted, government-backed payout—but it isn’t the free lunch it’s often advertised to be.
Like most things in retirement planning, the best decision depends less on slogans and more on understanding the numbers.
Note: AI helped me with the math.
I waited until 70 because I wanted the larger “paycheck”. I also bought a SPIA to fatten it up further. I have trouble spending from my portfolio, and I would rather have enough steady income that I feel free to spend and don’t need to sell from my equity positions unless I’m rebalancing.
Most investors don’t calculate how much their Social Security (SS) benefits could grow if they invested them instead of relying on them as income. Since my portfolio is more than sufficient to cover my needs, I choose to use my SS benefits rather than sell from my investments. This approach allows my portfolio to continue growing while still providing the same amount of income I would have received from SS.
In my case, I assumed an 8% annual return on my investments until death. Since retirement, I’ve actually achieved over 11% annually by focusing exclusively on bond funds.
I started taking my SS at age 65, which has worked well for my strategy.
Let’s see what will happen to…
1) Taking the money at age 65. $1000 at 8% after 5 years = $73K
In the next 20 years, from age 70 to 90, starting with $73K and adding $1K monthly, it will be $909K
2) Wait 5 years. SS = $1400 (40% more).
In the next 20 years, starting with zero and adding $1400 at 8% annually will be just $797K
I’m sure someone will say, “How can you be sure to make 8%?”
Because I can. I made more in 2022 too.
Let’s assume just 5% annually from age 65 forever.
I will have $67.8K after 5 years
The next 20 years = $585.7
If I start at age 70 with $1400. After 20 years = $568K.
Conclusion: if you have enough and your SS is invested, taking it at age 65 makes sense.
I ran into a quirk in the applying the delayed credits after the full retirement age where I applied for benefits with delayed credits 36 months (24%) after full retirement age. The start month was end of Q1 2024. However, my monthly benefit payment was the same as it would have been had I started Jan 2024.
Apparently delayed credits are applied only annually at year end for starts before age 70, with the remaining months earned mid year applied after next year end.
In my case I am still waiting for the catch up. Spoke to an SSA rep in early 2025, pre DOGE, & was told a program is run in March & October, so the catch up is forthcoming.
Nothing happened after March 2025 so I called a local SSA office mid September, knowing gov’t shutdown was likely in October The local rep said my benefit payment was pretty high already, how much more did I expect.
For a moment I almost went into ABORT, RETRY, IGNORE mode, but calmly answered that for each month I waited to start my benefits my monthly benefits will increase by 0.667% times my full retirement age benefit. So it’s my full retirement benefit times 0.667% times the number of months I waited in 2024 to start benefits. That’s what’s missing.
After being put on hold the call dropped. I decided to call the local office once more (RETRY) and got a different rep who was in a different local office. She said calls are being routed among local offices now to improve service. She was familiar with delayed credit processing and was sending in a request to run the program. She also repeated what I was told in early 2025, that missed amounts will be made up.
So…a few things to consider when looking at the nuance of all this.
1.) What is you expected REAL return in retirement on your investments? For me personally..I am planning on 4.25% REAL return on an 65/35 portfolio but have considered investing more aggressively post retirement up to an 80/20 mix in which I am planning on a 4.5% REAL return. So 5.3%+ plus risk free (and state tax free sounds great). Also, 5.3% is better than most IRR for annuity contracts. And just try to get an inflation rider on an annuity…ouch lol….the upcharge rarely makes sense.
2.) Does a bigger social security payment ENABLE you to take more risk with your investment? As we age, we slowly age past sequence of return risks (they never go away but they reduce). So as long as there isn’t a big market meltdown between age 62 and 70 (or 67 and 70), you can let your social security benefit grow and age age 70….you have a large piece of your monthly expenses coming in risk free. You COULD thus, choose a more aggressive investment mix. To what end? Maybe leaving more to the kids/grandkids or helping them out more now, improving quality of life while you are around, or just extra padding for long term care. That is, if you can sleep and stomach the ups and downs. I can now but I am 41…no idea what will be my personal sentiment or preference at 70 though.
3.) This is the BIG one…..it is EXTRA value able for a married person who is the higher earner. The author addressed the odds of death/break even as 83/84 which may sound like a stretch for 1 person. It is not for 2 people though. JOINT life expectancy for a married couple at 62 is 29 years…which would bring you to 91. At 67 it is 24.4 years which brings us to 91.4. For just women….at age 62 the joint life expectancy is 22….bring the female spouse to 84, the break even point for delaying to make financial sense. So, if at very LEAST the female spouse has average to better than average health, the odds are in the favor of the higher earner (male or female) to wait til 70. It will be the most affordable annuity the surviving spouse could get.
3.) The 5.3% is ever so slightly higher considering MOST states do not tax social security and on a federal level, 15% is not taxed *unless you you have very very low taxable income). Does this change the sentiment of the article or the master equation a ton…no…but every little bit helps.
4.) Also…helps with Roth conversions and tax bracket efficiency. Why…because the expenses of 2 people are not MUCH more than the expenses of one person. If 1 person can live off 50k, it is likely 2 can live off of 65-80k (or less). Property tax stays the same, less likely to need at home care, less food waste, little to no additional car insurance, gas money, electricity or gas. BUT with 2 people on your taxes, you get 2x the standard deduction and your brackets are higher. THEN…if one spouses passes….which save SOME money in monthly expenses, but not a ton on taxes, the surviving spouse will have more Roth funds (yay, no income tax) and a higher SS payment which they do no pay state tax on AND pay slightly less federal tax on.
5.) Surviving spouse. Lets say BOTH spouses claim at 62…at 65 the husband dies…the surviving spouse can claim the higher of the 2 payments. BUT…if the lower earner claims at 62 and the other spouse does not…then dies at 65…the PIA is locked in…the survivor can KEEP getting their benefits that started at 62 and at age 70 SWITCH to the increased benefit of the deceased higher earner. This is HUGE. It is the best of both worlds (not to undermine the pain of losing a spouse).
Moral….I wouldn’t let 5.3% vs. 8% deter you as there are many other reasons (financial and personal) to lock in a higher annuity/social security payment, the main on being….for the surviving spouse.
Is this for everyone? NO…..if you are single and can afford to claim early….it is especially logical if you are male, or have personal/family history that suggest you may have a below average life expectancy. If you have to unexpectedly retire early due to health….it makes sense. If the market crashes and you want to minimize what you pull from investments to give your investments more time to come back…it can make sense.
In general…..if you are married, OR female/single with average to above health OR single/male with above average health….it will likely make more sense to keep waiting.
Will, thanks for the valuable info. I have a question re #5 where you indicate that the surviving spouse can allow the deceased spouse’s benefit to accrue the normal mortality credits to age 70 and then claim the increased benefit. I can’t recall where I saw it but I’m not sure that’s accurate. My understanding is the deceased spouse’s benefit will accrue mortality credits until what would have been their full retirement age (FRA) or the date of death if after FRA whichever is later but no additional credits accrue after that. So, if a spouse had an FRA of 67 and died prior to that before taking benefits, the surviving spouse could allow the deceased spouse’s benefit to continue to accrue to what would have been their FRA and then adopt that benefit but no further benefit accrues after that, ie., there is no “waiting till 70” option. Alternatively, if the first spouse dies after FRA (let’s say 68) and before taking benefits, the surviving spouse should immediately adopt the deceased spouse’s higher benefit because the deceased spouse’s benefit will not increase after that date. Can you or any of the HD social security sages confirm which of these interpretations is correct because that will definitely impact my “Damn it! I’m dead” instructional letter to my survivors. Thanks.
Sorry, I don’t buy that unless SS is a major portion of retirement income and if that is the case a person may not be able to wait.
There is unlikely to be many people more aware of the importance of survivor benefits. I can’t count the number of times I had to tell a new widow her husband’s pension stopped because a survivor annuity was not selected.
I just think there are better ways to provide the protection than giving up years of SS benefits and trying to play the odds of longevity and investment risk.
I will be waiting until 70 and then Soc Sec will be a major portion of income.
I certainly understand your preference for more guaranteed income sources and sooner. This could like be a difference of preferences based on a reflections in our age differences. Well see if I hold the same sentiment as my wife and I enter our early 60’s …or whatever age we have to wait for our earliest potential access to SS when we get there. We are in our young 40’s, so well see what changes happen to SS and US tax codes in the next 20 years lol.
Well, you have a long way to go so maybe you will change your mind as time goes by.
I assume you have read about my approach and why. Connie is 4-1/2 years older than me so that too is a factor. I also have paid up (long ago) life insurance equal to about five years of basic expenses. What I did with investing Social Security at age 66+ now generates tax-free income equal to 3/4 of my current monthly net SS benefit.
The fact I have a pension with survivor benefits is somewhat unique I admit, but what seems to be overlooked in the SS discussion are the accumulated retirement saving assets (IRA/401k, etc) and the income they generate for most people. They don’t go away and are still available to a survivor in most cases.
If a couple were using 4% of say $1 million as income, that $40,000 is still there as is the SS survivor benefits started at any age – hopefully at least FRA. Plus the remaining assets which may still be near $1 million.
i guess what I miss is for all but the lowest income levels, is the extra 24% of added SS benefits that critical especially considering the assets used in order to delay benefits three years?
Clearly for many they conclude it is and I can understand that for many people, but not for the more financially sophisticated HD readers.
I would argue SS is the most flexible option for “annuity” / guaranteed income for married people. Pensions / traditional annuities do not have the same flexibility or options…or if they do, have are far more expensive.
It pays to understand the ins and out of social security survivor benefits and have someone to coach the surviving spouse IF they are not the financially savvy one in the relationship and/or a good death file to lays things out in a way the survivors spouses understands and trusts.
Delaying to 70, for those who can afford it, also helps with legacy planning since it opens up space for Roth conversions.
I never could understand how Roth conversions are viable later in life. I might be wrong, but at that point is it possible to gain sufficient tax free growth to offset the taxes paid at the conversion?
If you pay the taxes from your taxable account, you’re reducing the tax drag on that account.
But aren’t you going to pay those taxes anyway when you take $$ out of your IRA?
For me, at 62, I am planning on 30+ more years of growth +10 more years for the kids after I am gone. And they won’t need to pay the taxes. Plus, if I need the funds at any point the taxes are prepaid on my schedule and won’t come at a bad time.
By reducing required RMDs it reduces your income. This may lead to lower income taxes and lower IRMAA deductions.
That’s my main concern with claiming early. Most of our investments are in our 401(k)s, and it may be better to do Roth conversions for as long as possible before claiming SS.
Interesting analysis. Still, for the minority of us who can afford to delay and are in reasonably good health, it serves as a form of longevity insurance with a COLA.
Appreciate the input, here is an article also delving into the topic that presents NPV considerations. Jason Zwieg posted the link.
https://www.financialplanningassociation.org/learning/publications/journal/SEP24-net-present-value-analysis-roth-conversions-OPEN
I took SS early and saved IRA funds to grow, my IRA grew to an additional balance of ~ $290,000 during the time I received early SS. This extra balance will be eroded as my lower SS benefit will not be what I would have received at age 70. Should I earn 4% on this balance going forward I will have increased my break even age to 92. If I earn 5.5% my remaining additional IRA won’t be exhausted until age 102. I plan to track the remaining balance for a few years as I tend to question things and want to learn.
My wife and I have earned the same wages so we took mine early and let hers grow to age 70, our benefits were $16 different. Also should she pass I will get her higher amount and the remaining additional IRA I earned, she will receive her benefit and my additional IRA should I pass.
Mary Beth Franklin presents excellent info on SS and various options depending on individual circumstances. Taking SS early worked well for me.
William, I appreciate you running through the actual numbers. Though not 8%, a guaranteed 5% is pretty good! I personally prefer to look at delayed claiming as longevity insurance (an annuity), particularly for the higher earning spouse. In your example, I can “buy” an annual inflation adjusted payout of $2,880 for $36,000 (8% payout ratio). Commercially available joint life annuities for two 70-year-olds currently payout about 7.2%, without inflation adjustments as they aren’t offered. So, if you frame it as an annuity/ insurance, delayed claiming appears to be a good deal.
Wade Pfau has done some good work in this area. His “Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success” is an excellence reference.
Appreciate all the thoughts (and math) that went into this. So many of us couldn’t wait until 70 to claim. It is good if you can, but there are so many variables for each person/family. It is not a personal failing to have to claim earlier than 70 if you need the income and don’t have enough assets for a bridge account. Or if you have health issues like Spouse’s late brother I have written about here. SS was a blessing to his wife and him.
Another thought I had was SS is not inheritable (other than survivor benefits), but your retirement accounts are. Chris
While SS isn’t inheritable, if you waited until 70 instead of 67 you could invest the 24% benefit increase in equities each year. Whether that would result your ending up with a larger equity portfolio than you would have if you claimed at 67 which allowed you to not draw down some of your equities between 67 and 70 would depend on how long you lived.
Could also depend on the market when making the decision. I have read about scenarios where there is a depressions or steep recession and your equity drops 30-40%+ In that moment…it COULD make sense to take SS to preserve as much of your investment to give them more time to bounce back.
You have completely omitted the reason why I, with a non-COLAed pension, waited until 70 to claim. I wanted the largest possible basis for future COLAs. As I have written here before, reaching “break-even” is a matter of supreme indifference to me. What matters is the size of my monthly payment, not the total amount I receive. Please don’t suggest that I should have invested the monthly payments I chose not to take: interest rates at the time were minuscule, and while the stock market actually went up, it might equally have gone down.
Actually, without knowing what the COLA adjustments will be, I don’t see how you can accurately calculate future payments and the breakeven point. You write “They earn 24% more in monthly benefits for the rest of their life.” They also earn more each time there is a COLA adjustment.
As I noted below, if you claim at an older age you will earn increasingly more in $ benefits each time there is a COLA adjustment even though you will continue to earn 24% more for the rest of your life (32% more for us old folks with an FRA of 66).
I agree, what matters is the monthly payment.
But here is a different route that does involve taking at FRA and investing – sort of.
I started that 17 years ago and did so for several years. But being overly cautious I invested both our SS benefits in municipal bond funds. Three funds of different duration. Hardly market returns needless to say. The current return in the long-term fund where the bulk of the money is, is 3.66%
Today they generate $1750 a month in tax free interest (potential income) which is still reinvested until my non-COLA pension plus FRA SS is insufficient.
However, the value of those funds is now well into six figures thus providing added flexibility and security – and a potential inheritance for our children something SS definitely can’t do.
Not for everyone, just an option. And as you said “reaching “break-even” is a matter of supreme indifference to me.” Me too.
That makes total sense, Dick.
What he completely missed is the fact that each time there is a COLA the $ difference in benefits increases even though the percent difference remains the same. There is simply no way that the % difference can remain constant each time there is an adjustment without the $ amount changing.
As an extreme example consider the impact of a 5% COLA for A who is receiving $1,000/month and B who is receiving $10,000/month. A’s benefit will increase to $1,050 and B’s benefit will increase to $10,500 and the difference between their monthly benefits will increase from $9,000 to $9,450. If there is another 5% COLA the following year, A’s benefit will increase by $52.50 to $1,102.50 and B’s benefit will increase by $525 to $11,025 and the difference between their benefits will increase to $9,922.50.
Thus, even though A and B received the same COLA % increases, compounding on the different amounts increased the difference in their benefits by $922.50 (i.e., from $10,000-$1,000= $9,000 to $11,025-$1,102.50=$9,922.50). Note also that compounding results in the difference in benefits increasing from $450 in the first year to $525 in the second year and that the difference in benefits with continue to grow every year there is a COLA.
I’ve wondered why no one has calculated at what age you are most likely to collect the most money. We know the average life expectancy. My guess is Uncle Sam has figured out that it’s not a big difference.
Any age is actuarial neutral, but needs some adjustment based on change in life expectancy tables.
Ed, from an actuarial standpoint, I believe you are correct. Assuming an average lifespan, you should receive the same benefit whether you begin collecting social security at 62 or 70. However, for those in good health and who can afford to wait, there may be benefit delaying and collecting a larger guaranteed lifetime income with inflation adjustments.
Ken, you are correct per Mary Beth Franklin who speaks and writes about SS. She states the system is designed to provide similar results at the life expectancy age.
I still maintain the “maximizing benefits” strategy is a red herring – the true goal for most people is to “not run out of money”. Perhaps if you have enough other income that running out of money is not a concern – then you can pivot to maximizing benefits for personal consumption or passing on.
Still sounds like a great deal to me.
William, thanks for doing the work on this post, as I had no idea how the math worked, and have often preached the 8% gospel.
Still, I submit that for some who will have an over-reliance on SS, logic is more important than math. Consider: A friend of mine was born in 1942, I believe his NRA was 65 and 10 months. He continued to work into his early 70s. He had no savings, zero. He waxed eloquently about his decision to claim at NRA. He lived high off the hog with the SS coming in, making the same mistake I see nearly every early claimer of SS make. He didn’t save any of it. Now, at age 83, he’s stuck with his NRA benefit, and no other source of income. His decision resulted in approximately $700 per month in reduced benefit; money he sorely needs today.
NRA?
Nominal Retirement Age possibly.
Yes, sorry. NRA is used interchangeably with FRA, full retirement age.
I actually like to use maximum benefit (claiming at 70), and minimum benefit (claiming at 62).
I’m sorry but all % increases in SS do compound. Because the person who delays starts with a higher amount each percent increase will increase the $ difference between what he or she would have received by claiming at 67 versus what he or she receives by waiting to claim until 70 even though everyone gets the same % increase.
Thanks for doing the math, William.
Other factors may exist for those able to wait. Were I to claim now (at full retirement age, instead of at 70), 37% of my SS income would go towards higher taxes and IRMAA. At age 70.5, I should be able to offset the additional income from SS with qualified charitable distributions from an inherited IRA. I realize I am very fortunate to be in this situation, and for me it is reason enough to wait.
The main benefit for me is that the increased benefit will pass onto my wife should she outlive me- Her PIA was less than half of my PIA . If I were single I would probably collect at FRA.
Two things to consider, the ages of each of you and the probable number of years after age 70 the increased benefit difference would be paid.
I appreciate your clear explanation of the math behind the “8% return” and what it actually means in real terms. I also agree with you that a 5.3% real return is not bad at all – especially when you consider that, for couples in which one spouse is the higher earner, delaying until age 70 could provide a higher income for the surviving spouse. That can be an important consideration for many people.
While it’s certainly true that not everyone has the option to delay when they claim benefits, for those who do, it’s important to understand the trade-offs.
It’s all gobbledygook to me, as Mark said, few people have the luxury of delaying SS after they retire and the data seem to show that.
The literature says people are not saving sufficiently for their retirement so in the future the decision will more likely be when can I afford to retire at all let alone when to start SS benefits.
Basically we framed the decision incorrectly. If I had retired at 62 under our pension plan I would have received a reduction in my benefit. Unlike SS, a pension plan is not thought of as adding benefits by delaying.
The reality is that the normal retire age under SS is 70 and collecting earlier reduces the benefit, but of course, that doesn’t sound as attractive as adding more benefits so we make it more complicated and then more so by worrying about the break even years or the total collected over a lifetime.
Never in nearly fifty years managing pension plans did I even hear the unions or an individual express concern about the total lifetime benefits they may collect. We negotiated a formula based on when a person could retire and receive their full accrued benefit. It was all about income when needed or desired.
If you were working and the boss offered you a 3% raise, would you say, no thanks, I’ll wait until you can make it 6%?
I followed a strategy that involved starting both our SS while I was still working. I have been widely criticized on HD for discussing it, but it worked well for us and that’s the point.
People should do what works for them, not what they are told by a calculator based on maximizing aggregate benefits over an assumed time frame.
I also feel considering survivor benefits as a factor in delaying SS is a mistake. Survivor benefits are important, but there are other ways to deal with them – life insurance, income from investments, the accumulated investments themselves, perhaps an annuity designed for that purpose and for the fortunate minority, pension survivor annuities and of course the normal SS benefit.
The vast majority of Americans just want income they can live on when they want to retire. They are not concerned with PV or IRR, interest rates, maximization or breaking even.
Right now many are more worried about a potential reduction of 27% in the future.
Dick you and I are in the same page here. Personal finance involves different strokes for different folks. The issue with the general advice to wait is that it makes the assumption that everyone needs the larger checks at aged 70. For those who haven’t saved sufficient assets, that make sense and they should keep working until aged 70 at least. For those who dont need the funds due to sufficient retirement assets, it is more nuanced and it depends on what value the place on the added income from claiming earlier vs a bigger check from claiming later. For me, the bigger check is less important and if i retire early and I can defer withdrawals from my retirement accounts then that’s when claiming early, albeit a smaller check makes sense. I know I can leave my retirement accounts to my kids, SS dies when I do. My wife doesn’t need the bigger check so we plan on taking SS as soon as I have completed my Roth Conversions.
William, your article got me thinking. While it’s interesting and useful information, I suspect that being able to choose whether to delay Social Security is actually a privilege. Sadly, I would think many people, possibly the majority, don’t have that luxury and simply need to claim their benefits as soon as they reach 67.
Yes, being financially able to delay Social Security benefits is a privilege. It has value if you can afford to do it.
But many people want or need to start receiving benefits at age 62 or at their normal age.
i waited until age 70 and do not regret that choice, but realize that the choice was only possible because we were in a position to afford the delay.
Definitely without doubt, if you can afford to delay, it’s worth the wait. No disagreement with that.
Gary, I’m in the boat with you; a darn good boat I would say. I had a part time business that provided enough income to afford to delay until 70, without the need to tap savings. It also allowed my wife to retire at 64, begin her SS, and become my severely underpaid helper. Whichever of us dies last won’t feel the loss of her reduced SS too much. That’s all that mattered to me while deciding when to claim.
Could we have fared better by resorting to calculators and complex math gymnastics? Maybe, I don’t know. I do know that I have no regrets.
William, can you please do the same calculations drawing at age 62 vs 70 ?
Thanks
Mark asked to calculate the return starting from age 62, but that creates a problem. If you claim at 62 and keep working, you’ll run straight into the Earnings Test. Until you reach full retirement age, Social Security withholds part—or even all—of your benefit if your work income exceeds the annual limit. In practice, that means you aren’t truly receiving both your paycheck and your full Social Security benefit at 62.
Any comparison that starts at 62 ends up distorted because you’re not getting the full benefit you think you’re getting. That’s why the clean, apples-to-apples calculation begins at full retirement age, when you’re allowed to receive both your Social Security benefit and your earnings without any reduction.
Why do you assume that someone claiming at 62 continues to work? The opposite is probably more likely.
Exactly ! Please do the calculation comparing age 62 vs 70.