That's what I thought as I read the chiding e-mail notes from readers. They were responding to a recent column outlining how much you can increase your Social Security retirement benefits by delaying retirement.
I thought this would be good news for people who had little in assets and no pension plan. For such people --- a simple delay, a 'last chance'--- would make it possible to increase monthly Social Security benefits, pay off debts, and accumulate some assets.
Instead, readers argued that delaying retirement was not a good way to maximize the total benefits you could get from Social Security. Better, they said, to take the money early because you'd never recoup the forgone income if you retired later. Basically, readers were addressing a different problem--- maximum total benefit rather than maximum monthly benefit.
But let's examine the total benefit argument.
The basic argument is quite logical--- if your choice is to take $936 a month at age 62, $1,167 a month at age 65, or $1,588 a month at age 70 you should take the money at 62 and run. In the three years between 62 and 65 the monthly benefits could pile up to $33,696. It would take 12 years before the $231 increase in the monthly benefit amounted to that much.
Ditto, retiring at 70. In that case the $936 monthly benefit would amount to $89,856 over eight years. It would take nearly12 years for the $652 increase in monthly benefits to amount to that much.
Readers didn't expect to live that long.
And that's what surprised me. Every single reader assumed they would die early. Every reader, in effect, bet against his own life. Each reader assumed he (or she) would die long before the higher benefit at a later age could compensate for the benefits lost between 62 and a later retirement.
In fact, the life expectancy tables argue otherwise.
Let's start with a basic definition. Your life expectancy is the age at which there is a 50 percent chance that half of the people in your group will be dead and half will still be alive.
Recall that it will take about 12 years for the higher but later benefit to catch up with the benefits paid earlier. Well, at age 65 a man has a 60.2 percent chance of living an additional 15 years to age 80. Odds are he'll come out ahead on a late retirement. At age 65 a woman has a 73.7 percent chance of living an additional 15 years to age 80. Man or woman, you've got good odds that you'll come out ahead by delaying retirement from 62 to 65.
A still later retirement is a reasonable bet, particularly for women. A man who retires at age 70 has a life expectancy of 12.5 years--- just over break even. He has a 66.4 percent chance of living 10 years and a 43.4 percent chance of living an additional 15 years. A woman who retires at age 70 has a life expectancy of 15.4 years and a 59.3 percent change of living an additional 15 years.
If you are in reasonable health, delaying retirement is a good way to maximize your monthly Social Security income. It also gives you favorable odds at maximizing the total you receive in benefits.
What about the money you can earn by investing the early benefits? Doesn't that make a difference?
It might. But other factors can reduce early benefits. If you take benefits at 62 and earn more than a small amount at work you may have your benefits reduced until you reach full retirement age. This will shorten the break-even period. Similarly, if your other sources of income may cause your benefits to be taxed. This will also reduce the break-even period, if you retire to a lower tax bracket. In addition, if you are 62 you'll need to take less risk and get a lower return--- so the earning power of benefits doesn't change things very much.
How would you do? A few differences in family history and living habits can change your life expectancy dramatically. You can check your life expectancy by visiting the life expectancy calculator on the MSN Money website.
The earlier column on the leverage in Social Security
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