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  • Mark Mooring

When Should I Take Social Security?

When preparing for retirement there are several difficult decisions to make. One of the biggest of these is whether to take your social security benefits at “full retirement age” (FRA), or to wait to collect a bigger benefit at age 70.

According to the Social Security Administration your payment will increase by 8% each year you do not take it after you hit FRA, so does this mean that leaving your social security payments until after FRA means that you are investing them at 8%?

The short answer is, No! Each year you delay you are leaving the previous years benefit on the table, which means the rate of return must be less than 8%. So, what is it?

Well to know that we must know something else -- how long will you receive payments? In other words, how long are you going to live? Since there is no way of answering this question, we ran a series of internal rate of return problems to estimate how long you would have to live to see a positive return on your delayed social security benefits.

Here are the results: If you die at age 73 your rate of return was -24.79%! To see a positive return, you would have to live to age 82. At age 87, the IRS’s “determined life expectancy”, your return would be a measly 3.07%. At age 100, the age-over-return curve is basically flat and the best you can hope for is 6.15%.

So, is waiting on social security a good investment? It depends. If you would otherwise be taking money from a savings account or a CD earning around 2.5%, waiting is a pretty good investment. On the other hand, if you would be taking money out of an investment account earning 8-10% annually, delaying social security is a losing proposition.

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