The other day I received a statement of my benefits for Social Security.  If I retired at age 62 and started drawing Social security, I should receive approximately $1,260 per month.  That amount would not meet anyone’s living expense, but it is something.  If I waited until I was 66 years old to start drawing Social Security, I would receive $1,678 per month. 

As a CPA, I receive questions concerning when to take Social Security by many of my clients.  I usually respond “it depends”.  Most don’t like that answer because they just want someone else to make the decision for them.  But it does depend on a lot of factors.  First of all, you have to realize that you will be giving up a lot of money.  In my case, I would give up $15,120 ($1,260 x 12) a year for 4 years which comes to $60,480.  However, if I waited until I was 66 years old, I would receive $1,678 a month.  That is $418 more each month in monthly benefits.  So at what age would I break even?  I can calculate that by dividing $60,480 by $418 which is my additional benefits at age 66.  This calculates to approximately 144 months or 12 years.  In conclusion, I would be 78 years old before I would have received enough additional income to recoup what I would have given up those first 4 years of eligibility. 

So, do I think I will live beyond 78 years old?  Only the Lord knows.  Do I want to take my money and run or bet I will live beyond 78 years old?  This decision certainly depends on each individual.  If someone has saved enough for retirement and can afford to live off that income prior to 66 years old, then waiting to draw Social Security is probably a good choice.  However, if they do not have the savings and they want to retire at 62 then they probably should start receiving Social Security benefits early.

Another factor in this calculation is the potential interest earned from the Social Security benefits received in the first 4 years.  This is assuming that you did not need the money but decided to invest the $60,480.  This additional income would depend on the rate of return and could vary depending on the investments.  In my case, I would need the money for monthly expenses.  I will be honest; it is hard to turn down $60,480, especially since statistically most men die at around the age of 76.

There is one caveat: you could lose part of your benefits if you earn more than $12,960 in wages per year.  This is calculated by decreasing your benefits $1 for every $2 that exceeds this amount.  Wages are considered to be W2 or self-employment income.   This does not include investment or passive income.

This means that I can only work part-time during the first 4 years.  After that I can work as much as I want and still receive my retirement benefits from Social Security.

My purpose is not to give legal or tax advice to anyone but only to express some of my thoughts about Social Security as it pertains to me.  Obviously, everyone’s situation is different and should consult their own advisor about Social Security.

~Marc