"I believe you to be totally wrong in regard to not taking Social Security at age 62. Every study I've read on "break-even points" concludes that based on average life expectancies for early, full and delayed benefits the benefits are designed to work out the same. Even a recent AARP column suggests taking early benefits."

So wrote F.P., a reader in Deerfield Beach, Florida. Other readers wrote to say much the same. I can't blame them. We've been told it's a good thing to take Social Security benefits early by dozens of sources. So let's examine the basic question.

A kind uncle has made an interesting offer. You can have $1,000 a month for the next 12 months and then nothing. Or you can have $80 a month for life starting 12 months from now. Which would you prefer?

Most go for the bird-in-hand.

Although the dollar figures differ somewhat from person to person, that's the kind of offer we get from Uncle Sam's Social Security Administration. Most of us take the money and run. Nearly 95 percent of all workers are taking Social Security benefits by age 66.

In fact, delaying benefits is a good gamble. This applies to waiting from age 62 to full retirement age (65 to 67) or waiting from your full retirement age to 70, when you must take benefits.  

You can understand by considering two examples.

---- Average persons born in 1943 will have their Social Security benefits increase by 8 percent if they delay taking them a year after full retirement age, which is 66. Since that increase is indexed to inflation, it will take 12.5 years before they will recoup the purchasing power they gave up.

Seems like forever, doesn't it?

Well, the life expectancy of the average American at age 66 is 17.5 years, according to government figures. White males at 66 have an expectancy of 15.9 years. Black males, the lowest life expectancy group in the country, have a life expectancy at 66 of 14.0 years. Women at 66 have an expectancy of 18.7 years.

Note that all these expectancies are well over 12.5 years. So, unless you have some certainty of a premature death, you are likely to gain lifetime income by deferring Social Security benefits. (Life expectancy does NOT mean coming out ahead is a slam dunk. While life expectancy for all people at 66 is 17.5 years, only 67.7 percent of those who choose to delay taking benefits a year will actually live to the age 83 breakeven.)

---- Those born in 1941 and 1942 will have their benefits increase by 7.5 percent for each year of delay. That means it will take 13.33 years to recoup their lost purchasing power

Again, broad life expectancies are substantially higher than 13.33 years. Average life expectancy of all Americans at 63, when you would take benefits after one year of deferral, is 19.7 years, with 74.1 percent surviving. Delaying benefits will "payoff" handsomely for many who do it. It may be the least expensive "longevity insurance" we can get. Besides, why bet on dying young?

If we look at the lost immediate benefits as an investment, a year of benefits gives us a lifetime inflation adjusted annuity equal to 8.0 percent of the benefits we opted not to take.   That's figured by assuming we give up $1,000 a month in benefits for a year ($12,000) to receive a lifetime benefit increase of $80 a month ($960 a year).

Can we get that from a conventional investment?

Not a chance. As I pointed out in the earlier column, an 8 percent initial withdrawal rate, adjusted upward for inflation each year, is likely to destroy an investment portfolio well before life expectancy.

What about an inflation adjusted life annuity from private sources?

The only product I know of is offered by Vanguard. So I went to its website and got a quote for a $100,000 investment for a 66 year old male. It would provide an inflation adjusted income of $495.25 a month or $5,943 a year. That's an annuity rate of 5.94 percent.

So, were it possible to make a relatively small investment and get that rate, it would cost $16,153 to buy the same lifetime increase in income from Vanguard that you can get by deferring $12,000 of Social Security benefits for a year.

On the web:

November 22, 2005: Scott Burns, "Take Your Time before Taking Social Security

CDC life expectancy figures for the U.S.

Social Security: Benefit reduction from full retirement age

Social Security: Calculate your full retirement age

Social Security: Rate of increase for delayed benefits

Vanguard: Lifetime income program