Dear Action Line: Do you make more on Social Security retiring at 62 when you live to 84? People say, "When you start taking it at 62, you collect benefits four years longer than retiring at 66." I'm sure there's more to it than a simple calculation. So what is it? - S.M., Tulsa.
You'd better go the distance for four more years, said retirement planning columnist Jennie L. Phipps, who has written articles and blogs for the online
DailyFinance.com for six years and for
Bankrate.com since July 2010.
In a
Bankrate.com article on Aug. 21 titled "Do the Social Security Math," she followed her own 62nd birthday saying she was not taking Social Security benefits until she was older. Someone named Abe responded, offering his own numbers.
Abe's numbers: "My Social Security at age 62 was $1,650 per month," for a $79,200 payout to age 66 (full retirement age). By waiting to age 66, I would have to live to age 78 to break even on return of cash, without any interest. By waiting, I am really buying an annuity with a close to zero rate of return.
"Actually, it's much worse than that, in that none of my payouts in this 'annuity' created by waiting are guaranteed or insured. For example, if I died at age 66, I would have lost the entire $79,200 that I gave up. Even if I make it into my 80s, I still have an annuity with an interest payout at close to zero, as my contributions from age 62 to 66 would have gone 20 years without a dime of interest being paid.
"By waiting from 62 to 66, you are buying the rawest deal in annuities ever invented."
Phipps replied: "Basic assumptions argue for delaying benefits. Using AARP's Social Security calculator, if Abe turned 62 this year and was entitled to $1,650, working backward, his benefit at 66 would be $2,195 per month, plus the cumulative cost-of-living adjustments, or COLAs. By waiting until age 70, his benefit would be $2,897 per month, plus the cumulative COLAs."
Social Security Planner software allows purchasers to estimate the value of a Social Security benefit in various ways. Phipps added a 2 percent COLA to Abe's benefit and calculated the difference between the amount he would get if he claimed at 62 and what he would receive at age 66 and age 70, assuming he lives the estimated life expectancy of 84 years, which the Social Security Administration and Census Bureau say is average.
If he claims $1,650 at 62, with a 2 percent average COLA, he would get a total of $559,040 by the time he reached 84. If he claims at full retirement age, 66, with a 2 percent average COLA, he would get $620,958 by age 84. If he waited until age 70, given the same circumstances, by age 84, he would have received a total of $666,840.
The difference between claiming at 70 and claiming at 62 is $107,800. Plus, the longer Abe lives, the more attractive delaying a claim becomes. If Abe were married - or even divorced after 10 years of marriage - the claiming strategies open to him are more numerous. If he waits until age 66, he can claim a spousal-only benefit based on his current or former spouse's income (as long as he remains single) and let his own benefit increase until age 70. That strategy could increase his total return significantly.
The bottom line: "Deciding when to take Social Security isn't a slam-dunk," Phipps wrote. "Taking it at 62 is rarely the smartest strategy if you are able to continue working and you have every reason to believe you'll live an average or longer lifespan."
Submit Action Line questions by calling 918-699-8888, emailing
phil.mulkins@TulsaWorld.com or by mailing them to Tulsa World Action Line, PO Box 1770, Tulsa OK 74102-1770.
Original Print Headline: Time to take Social Security isn't 'slam-dunk'
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Dear Action Line: I received a mailing from the IRS and wonder if this is typical. I thought all such notices came by email. Should I call the Tulsa IRS on this? - B.N., Tulsa
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