Starting Social Security Early – Break-Even Age Actuarial Analysis

The debate over when to start receiving Social Security Retirement Benefits rages on. I have written about it many times, as have others. My general impression is that there is a large group of folks who hit 62, are inclined to take their benefits just to have the money, then look for logic that supports their decision. In the absence of dire necessity or live-limiting health problems, I believe this is a bad approach to the problem.  Thus, I appreciated a recent article from CBS Money Watch that looked at the “retire early” issue from an actuarial perspective.

I can’t place all of the blame on boomers for their decisions to take SS benefits at age 62. In some cases, they are encouraged by their “financial advisers” to take the benefits and invest them. These advisers, of course, are primarily salesmen. What they don’t tell you is that many of their clients lack the discipline to actually invest the money when it arrives every month. They are tempted to spend it and they do.

But the article continues with the assumption that you will invest it. How does that work out?  Here is the short answer, in the words of the author:

Does the “start early and invest” strategy result in more income than if you had simply waited until age 70 to start your Social Security benefits? The answer is yes if you don’t live to at least average life expectancies, and/or if you achieve good rates of return. The answer is no if you live to average life expectancies or beyond and/or you achieve modest rates of return.

In more concrete terms, if you invest and achieve a 5% return on your investments, and further assuming 3% average COLA benefit adjustments, the break-even age for taking benefits at age 62 compared to age 70 is 82. If you achieve an 8% return, the break-even age increases to 89.

Do you really expect to earn 8% or even 5% for the next eight years in this economic climate? I hope so but I am not counting on it. A double-dip recession will kill that idea in a hurry.

The author points out that his simple actuarial analysis of taking Social Security early does not consider spousal benefits. This is a serious omission for married couples in which one spouse was the primary wage earner.

Here is a link to the full article: Start Social Security Early and Invest? Ask the Actuary


  1. says

    Yes, it’s so risky to invest in the current economic climate. But, I think that baby boomers can’t stand sitting there all the time doing nothing. They have been active all their lives. And all of a sudden, they have to stop that. But, there are much safer ways to increase one’s income, especially after the late technological development. Indeed, you can make money while sitting in your desk at home.

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