An article on CNBC came out this week from one of my favorite economists. He said that early retirement is one of the worst mistakes you can make. In the same piece, he said retirees should take their Social Security at age 70. I disagree on early retirement. I concede it’s true for most people because they aren’t saving enough. You can’t save what you don’t earn. On the second, I do agree most people should take Social Security at age 70. We plan to take Social Security for myself when I turn 70.
The above is a sample chart illustrating how your Social Security will change depending on when you can take it. The example given presumes you will get your full benefit of $1000 when you retire at 67. The earliest you can claim benefits is 62. The latest you can claim is 70.
Let’s look at the difference. At 62, your benefit is $700, a full 30% less than at 67. That’s $8,400 a year against $12,000 a year. If you are struggling for retirement income, this is a big increase.
At 70, the benefit is $1,240. This is 24% more than the full, standard benefit of $1000. This is $14,880 a year, forever, for as long as you live. All benefits are inflation adjusted. Additionally, if you are married, your spouse will get a greater portion of your benefit when you die. That’s a big reason for postponing your benefits. It’s not an easy decision.
If we do the math, benefits increase about 7.4% a year. Some enterprising folks may say take the benefits early, invest it and make more money. If you have the assets and fortitude to do that, go ahead. You’ll have to earn a consistent 10% every year on the income. That’s not easy to do over 8 years. Look at what happened this January to the markets as an example. Markets never consistently go up. They go down at the worst times.
For most people, it makes sense to postpone benefits. The big problem I see is, do we want to work until age 70? We can if we are short on savings, in good health, and enjoy working. If we have other things we want to do with life, we should make more income, save more, earn more on our savings and retire early. The big risk is summarized by the professor.
Half of 50-year-olds will live beyond age 80. A quarter will make it to age 90.
Jane could live to 100. Like the rest of us, Jane can’t count on dying on time. She needs to plan to live to her maximum age of life, because she might.
Lawrence J. Kotlikoff
Wishing our readers health, wealth, early retirement, and long life.
Warmest regards,
smilingdad
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