I have hopes of retiring early, hopefully around 55-60, and am making contributions to my 401k and regular investment accounts accordingly. I plan to live off of growth of my savings, and not retire until said growth substantially outstrips my living expenses.

My understanding is that Social Security benefits are dependent primarily on your best 35 years of income, as well as when you start benefits, and it appears that starting benefits at 62 will result in benefits valued at 57% of the benefits received if starting at 70.

That sounds bad, but doing the math, if I begin taking the benefits at 62 and just invest that income (assuming the standard 8% return), I can live my life from 62-70 the same as I would have if I waited until 70 to start benefits. In that time I will have saved several hundred thousand dollars, from which the 8% return will exceed the benefit amount itself.

Running that into the future, the total income from growth and benefits will always be greater if the benefits were started at 62 instead of 70. By the time I start at 70 my benefits plus return will be 5% lower than my benefits would have been if starting at 62, and will always remain 5% lower. If the market returns 7% instead of 8% the two options are roughly equivalent.

It seems like a lot of people decide to wait until 70 to start benefits. I can only see two possibly benefits of doing so:

  • Eliminate the risk of the market underperforming the 8% benchmark over the long term (20+ years of retirement).
  • Increase benefits using higher late-career-life earnings to knock out lower income years from youth. Not relevant for early retirees

Is there a flaw in my reasoning or math, or some other fact that I'm unaware of that makes delayed benefits appealing? Or does the entire decision come down to risk analysis.

  • 1
    Are you married or do you plan on being married? That plays significantly in the computation. Also how old are you now?
    – Pete B.
    Feb 3, 2020 at 18:01
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    The problem here is that "assuming the standard 8% return" is an assumption, not a guarantee. Some years, like the past several, you might get that or better. Other years you might not. On average, and after inflation, market returns are less than 7%.
    – jamesqf
    Feb 3, 2020 at 18:20
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    "It seems like a lot of people decide to wait until 70 to start benefits." - only about 4% of people wait until 70. Feb 3, 2020 at 18:22
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    @Nicholas - the most popular age is 62. usatoday.com/story/money/personalfinance/retirement/2018/06/19/… I think sometimes we forget that our self-selected group here is not necessarily representative of the population as a whole. Feb 3, 2020 at 23:50
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    Another point to consider is that some percentage of SS is not subject to income tax. (The exact percentage depends on income, and seems to require a fairly complicated calculation.) Thus if you spend other money while waiting for a larger age 70 benefit, you'll likely pay less tax on the benefit than you would the same amount of regular income - say withdrawals from traditional IRA/401k plans.
    – jamesqf
    Feb 4, 2020 at 5:21

1 Answer 1


The amounts you get from Social Security at different retirement ages are designed to be actuarially fair. That is, over your expected lifetime and adjusting for the time value of money, you'd expect to get the same value of payout whether you retired early (62), at full retirement age (65/66), or late (70).

Assuming the simple case of a single person making a decision on when to start benefits (married couples throw a number of wrinkles into things), and assuming you have sufficient resources outside Social Security that you don't need Social Security at 62 for basic survival, the biggest determinant on whether it makes sense to retire early or late is your expected lifetime. If you get to 62 and you're in excellent health, running marathons a few times a year, and you've got a history of family members who lived to 100, you're most likely better off waiting to retire until you're 70 and collecting the higher payout for several decades. If you get to 62, you've had a couple of heart attacks and are in generally poor health on the other hand, you'd want to retire early and collect what you can while you're alive. The Social Security Administration bases its estimates on average expected lifetimes not on your personal expected lifetime.

If your personal expected lifetime roughly matches the average, your personal discount rate would be the next thing to consider. As you've seen in your calculations, if your time value of money/ discount rate is different than the Social Security Administration's, that may also impact your decision. A 7 or 8% return is going to be more than the risk-free rate that the SSA would use in coming up with actuarially fair payouts. Of course, that means that if you started collecting early and the market didn't perform well over the first few years, you'd be accepting the risk that you'd be much worse off. If you used a risk-free rate and set the payments to end when you're expected to die, the payment streams should all be equally valued.

In addition to the purely financial considerations, though, there are also likely to be practical considerations. For most retirees, there is a limited window after retirement where they are still healthy enough to really enjoy an active retirement. There are a lot more people that are going to be up for going on long flights and touring Europe, the Pyramids, or some other destination at 62 than at 82. For many people, it makes sense to spend more early in retirement while they can enjoy it and to cut their budget later when they're less active (of course, the budget likely has to increase later as they need to spend more on health care and other forms of assistance). It may make more sense to take Social Security early if that allows you to enjoy that window of time even if it costs you a bit financially overall.

  • 1) If I'm not mistaken, 8% IS the rate at which SS benefits increase. 2) You might also consider whether you actually WANT to go on long flights. Personally, I had more than enough of that in previous jobs, and will be much happier if I never again have to get on a plane I'm not flying myself.
    – jamesqf
    Feb 4, 2020 at 5:25

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