Delayed (or Early) Retirement Calculation (from Full Retirement Age)
Who might care: Those within 10-years of retirement.
The point of this: When might I claim Social Security
Why: To plan for Financial Security
Social Security is an important part of retirement planning. In my own personal financial planning I've been contemplating three mathematical problems: Delayed (or Early) Retirement, Benefit Calculation, and Taxation.
I started saving for retirement via an IRA at age 25. Now at age 56, it hasn’t really worked out. The problem is/was discipline, market cycles, and now a Zero Interest Rate Policy (ZIRP). I heard the other day (maybe wrong) that Retirement Accounts only account for 4% of retiree’s income. I think, IRA’s haven’t really worked out. So I was thinking, darn, I wish I had bought an annuity at age 25 instead. Back then, they were paying pretty well.
Then I realized, I can get annuity rates of yesteryear! Social Security was written into law with a Rate of Return that hasn’t changed in decades. Let’s take a look at it and discuss how to buy in.
This is Part 2: In part 1 how to calculate for benefit at full retirement age (FRA) was discussed. If you want to skip that, you can get the benefit amount off you Social Security Statement.
Calculation Elements (Incentive Structure):
Full Retirement Age (FRA): 67 years old (for those born 1960 or later). If not you, fear not, the principle that follows generally applies to all recipients.
Early Eligibility Age (EEA): 62 years old (really 62 & a month for most people).
Delayed Retirement Credit (DRC): Delaying retirement up to 70 years of age.
Basic Calculation:Taking Social Security at age 62 reduces your benefit by about 30%. Taking Social Security at age 70 increases your benefit by about 24%.
Basic Calculation (there are 3 rates of return):
1) From age 62, the rate of increase is 6.67% for the first three years (20%).
2) At age 65, the rate of increase is 5% for the next two years (10%).
3) And, at 67 (FRA), rate of increase is about 8% for the last three years (24%).
So, at ages 62 – 64 the monthly rate increases are 5/9 of 1% percent, ages 65 – 66 the monthly rate increase is 5/12 of 1% percent.
https://www.ssa.gov/OACT/quickcalc/earlyretire.html
Break Even Point: Using a spreadsheet, if you calculate the various ages you wish to claim social security (For example 62, 67, 70 years of age). Add the total revenues, per year together, you may find that your break even point is about eighty years of age. Eighty years of age is my break even. No matter when I claim Social Security, in total, I’ll get the same amount if I die at 80 years of age. In other words, if you die before age 80 (and you’re single), it may not make sense to delay claiming social security early. If you are married and in good health it may make sense to delay claiming Social Security.
Actuarial Life Tables: We often hear that people are living longer. Unfortunately, it’s only slightly true. I think people are living about 2 years longer. But, this all depends on how you define the sample. Modern medicine has done really well with childhood disease. Add children into the sample, people are living a lot longer. However, we care about how long an average 65 year old person is expected to live. Born 1960 it's 80 years for a male and 85 years for a female.
https://www.ssa.gov/oact/STATS/table4c6.html]https://www.ssa.gov/oact/STATS/table4c6.html
If you are married and in good health, there’s a good chance that one of you will live into your 90s. It may make sense to delay one social security to carry the survivor forward if one dies.
Popular age for Claiming Social Security: The most popular age for claiming Social Security is 62. The second most popular age is 65 because at 65 you can start Medicare.
Medicare: Be aware that Medicare (part B) Premiums are often deducted from Social Security (2016 starts at $104.90 a month at age 65). I’ll admit I don’t know much about Medicare, only that it’s an expense that’s hanging out there.
https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html
Given that you’re in good health and/or married you may want to delay filling for social security. The rate of return is better than most Bonds, CDs, or Annuities. Because, the rate of return was written into it decades ago. If you retire early, say 62, you might want to consider living frugally on your IRA (401k), while increasing your Social Security Benefit.
Buying in (up): Living frugally, intentionally, and delaying Social Security, might be the best investment choice for a retiree. The rate of return (waiting) looks pretty good in this ZIRP enviroment.
Disclaimer: The above is for educational purposes only. These are just my opinions. It probably contains errors. Refer to the social security and Medicare web sites for actual information.
Who might care: Those within 10-years of retirement.
The point of this: When might I claim Social Security
Why: To plan for Financial Security
Social Security is an important part of retirement planning. In my own personal financial planning I've been contemplating three mathematical problems: Delayed (or Early) Retirement, Benefit Calculation, and Taxation.
I started saving for retirement via an IRA at age 25. Now at age 56, it hasn’t really worked out. The problem is/was discipline, market cycles, and now a Zero Interest Rate Policy (ZIRP). I heard the other day (maybe wrong) that Retirement Accounts only account for 4% of retiree’s income. I think, IRA’s haven’t really worked out. So I was thinking, darn, I wish I had bought an annuity at age 25 instead. Back then, they were paying pretty well.
Then I realized, I can get annuity rates of yesteryear! Social Security was written into law with a Rate of Return that hasn’t changed in decades. Let’s take a look at it and discuss how to buy in.
This is Part 2: In part 1 how to calculate for benefit at full retirement age (FRA) was discussed. If you want to skip that, you can get the benefit amount off you Social Security Statement.
Calculation Elements (Incentive Structure):
Full Retirement Age (FRA): 67 years old (for those born 1960 or later). If not you, fear not, the principle that follows generally applies to all recipients.
Early Eligibility Age (EEA): 62 years old (really 62 & a month for most people).
Delayed Retirement Credit (DRC): Delaying retirement up to 70 years of age.
Basic Calculation:Taking Social Security at age 62 reduces your benefit by about 30%. Taking Social Security at age 70 increases your benefit by about 24%.
Basic Calculation (there are 3 rates of return):
1) From age 62, the rate of increase is 6.67% for the first three years (20%).
2) At age 65, the rate of increase is 5% for the next two years (10%).
3) And, at 67 (FRA), rate of increase is about 8% for the last three years (24%).
So, at ages 62 – 64 the monthly rate increases are 5/9 of 1% percent, ages 65 – 66 the monthly rate increase is 5/12 of 1% percent.
https://www.ssa.gov/OACT/quickcalc/earlyretire.html
Break Even Point: Using a spreadsheet, if you calculate the various ages you wish to claim social security (For example 62, 67, 70 years of age). Add the total revenues, per year together, you may find that your break even point is about eighty years of age. Eighty years of age is my break even. No matter when I claim Social Security, in total, I’ll get the same amount if I die at 80 years of age. In other words, if you die before age 80 (and you’re single), it may not make sense to delay claiming social security early. If you are married and in good health it may make sense to delay claiming Social Security.
Actuarial Life Tables: We often hear that people are living longer. Unfortunately, it’s only slightly true. I think people are living about 2 years longer. But, this all depends on how you define the sample. Modern medicine has done really well with childhood disease. Add children into the sample, people are living a lot longer. However, we care about how long an average 65 year old person is expected to live. Born 1960 it's 80 years for a male and 85 years for a female.
https://www.ssa.gov/oact/STATS/table4c6.html]https://www.ssa.gov/oact/STATS/table4c6.html
If you are married and in good health, there’s a good chance that one of you will live into your 90s. It may make sense to delay one social security to carry the survivor forward if one dies.
Popular age for Claiming Social Security: The most popular age for claiming Social Security is 62. The second most popular age is 65 because at 65 you can start Medicare.
Medicare: Be aware that Medicare (part B) Premiums are often deducted from Social Security (2016 starts at $104.90 a month at age 65). I’ll admit I don’t know much about Medicare, only that it’s an expense that’s hanging out there.
https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html
Given that you’re in good health and/or married you may want to delay filling for social security. The rate of return is better than most Bonds, CDs, or Annuities. Because, the rate of return was written into it decades ago. If you retire early, say 62, you might want to consider living frugally on your IRA (401k), while increasing your Social Security Benefit.
Buying in (up): Living frugally, intentionally, and delaying Social Security, might be the best investment choice for a retiree. The rate of return (waiting) looks pretty good in this ZIRP enviroment.
Disclaimer: The above is for educational purposes only. These are just my opinions. It probably contains errors. Refer to the social security and Medicare web sites for actual information.
