AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

In your Q&A in the Express news 08-18-08 you discussed drawing early ss benefits. I do not think that you are exactly correct. Even after taxes, the recipient ends up with $9450 per year. If he drew this amount for three years, he would have $28,350 that he would have given up to get full benefits later on. Your example states that his full benefit would be around $960 a year more if he waited to get full benefits. At this rate, even if he had zero return on his $28,350 investment, it would take over 29 years to make up what he lost by waiting. Perhaps I'm missing something here. Please explain it to me.

SJM,

To keep the calculation simple, I assumed only one year of delay. So for giving up $12,000 of pre-tax Social Security benefits and $9,450 of after-tax benefits, the engineer would enjoy a lifetime benefit increase of $960 a year. If he delayed for an additional year, he would give up another $12,000 or so and see his benefit increase by another $960 or so. (I say "or so" because there would be an inflation increase to account for.)

If the gain is $960 a year for each $12,000 of benefit foregone, the payback period is 12.5 years. Since that $960 will be inflation-adjusted each year, that's a 100 percent payback in real purchasing power in 12.5 years. The life expectancy of a 62 year old male is 18.9 years so delaying is a much better than even gamble.

Your calculations assume three years of lost benefits but only assume one year of increased benefits.

Here's a link to the column as it appears on the website. Newspapers have been known to make unfortunate cuts. http://assetbuilder.com/blogs/scott_burns/archive/2008/08/13/for-retirement-make-high-probability-bets.aspx

Scott