If I were to list my clients’ biggest questions, I’d say Social Security timing tops the list. It makes sense that people would want to know how long they should wait to get their maximum Social Security benefit. They know that by waiting they get bigger checks, but taking benefits earlier translates into more payments but lower amounts. At what point would they break even?
There’s a fairly simple mathematical formula, but it calculates the maximum Social Security benefit in total dollars only. It does not take into account inflation or any adjustments made for it, the time value of money, or the value of investing it.
With that in mind, let’s do the math for a fictional client named Bill, who just reached his full retirement age at 66 and could collect a benefit of $1,000 a month. Should he begin taking Social Security now or wait? By waiting, his benefits (like all Americans’) would grow by 8 percent each year—but he’s also passing up $1,000 a month right now.
Basically, if Bill waits a year, he’ll forfeit $12,000, but gain $80 a month. To find out his break-even age, Bill would divide $12,000 by $80 a month, which equals 150 months or 12½ years. In other words, if Bill waits one year, it will take him 12½ years to get back to even. If he thinks he’ll live longer than 12½ years, he might want to wait and let his money grow. (By the way, we generally do not recommend waiting past 70 to take Social Security.)
You can use this calculation to help you determine your break-even age, remembering that it provides a general outlook rather than a detailed picture and that deciding when to take Social Security benefits can be extremely complex. You should take other factors into account to ensure you’re truly maximizing the benefits, especially if you are married or still working. Luckily, all of RPOA’s Retirement Planners are trained to advise you on Social Security matters, and would love to help you determine how to get your maximum Social Security benefits. Schedule an appointment with us today.