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HERE'S AN IDEA

Social Security benefits should be taken as soon as possible. This is the best way to maximize the income you can draw from the program. You may be thinking I am crazy right now, because the dollar amount you receive goes up if you wait longer to collect.

WHY AM I NOT CRAZY?

The average lifespan for a male in the US at this time is about 78 years. Let us suppose that keeping with the retirement age of 67 is the plan. You may start receiving benefits if you wish at age 62, or wait until at 67, or 70.

For a real sample case, the numbers look like this.

Start receiving benefits at:
Age 62: 919/month
Age 67: 1306/month
Age 70: 1619/month

Now, if you start receiving benefits at age 62, but keep working until 67, you can invest the distributions for those 5 years. At a 12% return, you would have grown an extra $78,500 for use in your retirement. That is on top of an ongoing benefit of $919/month. So, because of the extra nest egg you've built up, starting at age 67, you can add an extra 12% withdrawal from the $78,500 to augment your income, bringing your total monthly income to about $1704. That's nearly $400 more than the government would have been giving you had you just waited until age 67 to start receiving benefits. (Note that I am comparing apples to apples, because in either case, you are not consuming the money until you reach age 67)

What about waiting until age 70? That is an 8 year investment period before you start drawing money out if you instead took the benefits at age 62. Again at a 12% return, you would have $152,000. Start withdrawing at age 70 and you get a monthly income of $1520 at a 12% withdrawal rate. Add that to the $919, and you are at $2439 a month. That sounds a lot better than the $1619 a month the government was going to give you. (Again note that I am comparing apples to apples, because in either case, you are not consuming the money until you reach age 70)

SUMMARY

In summary, I am advocating that you take distributions as early as possible, but instead of using the income, re-invest it in good mutual funds. As long as you have a 5 to 10 year window before you will be using the money, you can manage this money much better in good mutual funds than the government can. The US Government is well known for an inability to display financial competence.

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