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Using the Social Security Calculator, I found the following:

  1. If I work for 25 years at $200k per year (for simplicity), and wait till 62 to retire, my monthly benefit is $2200. ($2200 is today's dollars. If it is future dollars for my situation (with inflation), it is $2879)

  2. If I work for 30 years at $200k per year, and wait till 62 to retire, my monthly benefit is $2388.

  3. If I only work for 20 years at $200k per year, and wait till 67 to retire, my monthly benefit is $2855.

  4. If I only work for 25 years at $200k per year, and wait till 67 to retire, my monthly benefit is $3125.

  5. If I work for 30 years at $200k per year, and wait till 67 to retire, my monthly benefit is $3392.

  6. [updated] If I only work for 25 years at $200k per year, and wait till 70 to retire, my monthly benefit is $3875.

So it looks like, working 5 or 10 years more doesn't help much, but waiting to age 67 helps a lot. Then would it be in general a best practice to not claim retirement at age 62, but rather, use your other retirement funds, such as Roth IRA or 401k, and wait till age 67 to get that $3000 per month?

Assuming $3000 is ok to live in a medium cost of living area, and that it will be inflation adjusted to a higher amount, then it means if you wait till 67 by using your other funds first, then you could be set for life. (say if you move to Florida, Singapore, Taiwan, or Thailand). Assuming you still have Roth IRA and 401k left at age 67, then you have money for the extra vacation or any unexpected needs.

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    The use of $200K a year could be skewing the results because that would mean that you have been earning money above the maximum tax level, those extra dollars in those years don't help increase the monthly benefit. Mar 30, 2023 at 15:54
  • right... I am just assuming I am maxing out the FICA amount every year... so even though I might have earned less 20 years ago, I just assume I was maxing out Mar 30, 2023 at 15:55
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    What is your expected death date? Mar 31, 2023 at 2:42
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    Even you don't get the maximum benefits at 62, there are reasons to start taking Social Security then. Harper's comment "What is your expected death date" is pertinent. (You don't know.)
    – Wastrel
    Mar 31, 2023 at 14:05
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    All of this assumes the retirement age won't be increased by the time you retire. In reality it's likely to be bumped by ~5 years in the upcoming decades. Mar 31, 2023 at 15:29

6 Answers 6

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Each month from full retirement age (FRA) as defined by Social Security till age 70, your monthly benefit increases if you delay the start of SS benefits. The rationale for the increase is that the total SS benefit that you will get if you live exactly as long as your life expectancy is the same regardless of where the SS benefit starts at FRA or at age 70, or at some time in between. There is no increase in benefits past age 70, and so waiting till one is almost 71 means losing out on almost one year of SS benefits. The life expectancy is longer at age X than it is at age X+1, and so you get a smaller monthly benefit for a longer time if you start taking SS benefits at age X or a larger benefit (for what Social Security hopes is a shorter time) if you start taking SS benefits at age X+1. The equality of sum total of SS benefits is based on you being an average law-abiding person who lives exactly as long as the Social Security Administration's tables of life expectancy say you can be expected to live.

So, if you are in good health and expect to live for a long time, it is better to wait to start SS benefits till age 70 and continue to receive the (larger) benefit even when you are way past the age when Social Security expected you to die. If you are in poor health and might not make it to your life expectancy, start SS benefits sooner, possibly even before reaching FRA, so that you can collect as much as possible before you pass on. Contrary to what many believe, there is no pot of money containing all your contributions over the years (plus earnings) with your name on it in Social Security with your heirs receiving what is left in the pot when you pass on; that's the IRA model, not the Social Security model. So, get yours while the going is good if you are in poor health but wait till 70 if you are in good health; your 90-year old future self will be glad of the extra money coming in. And of course, you could drop dead from a stroke caused by undiagnosed (or ignored) high blood pressure ("the silent killer") on your 70th birthday and not receive a dime in Social Security benefits....

Finally, SS benefits are based on the 35 highest years of SS earnings. If one earns a flat $200K for 20 years and no SS wages after that (say the new job is for a State government that does not participate in Social Security, or one is taking time off to raise a family, or care for an elderly parent etc), then there are 15 years with zero SS earnings included in those 35 years. So, any additional SS earnings (including after SS benefits have started) will replace some of those zero-earnings years, and increase the SS benefit because Social Security does recalculate SS benefits each year for such people, and so the SS benefit amount can increase from such employment (in addition to other reasons such as Cost Of Living Adjustments (COLAs) etc).

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    from #1 to #5 in the question, it seems working 5 years more (from 20 to 25 or 25 to 30) doesn't change the benefits that much, but waiting from 62 to 67 does Mar 30, 2023 at 18:16
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    @DilipSarwate The SSWB is adjusted based on the average wage index, so it is basically a multiple of the average wage. It is unlikely that somebody at 20-25 is going to be fresh into the job market and making, for 2000, 2.3x the average wage. Besides, the wage base is capped because the benefits are equally capped, so it's not like you are getting better returns once you stop paying.
    – user71659
    Mar 31, 2023 at 1:35
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    I would further argue that if you are of approximately average health, you should wait to claim benefits, because it is a way to purchase longevity insurance. This is along the lines of your sentence "your 90-year old future self will be glad of the extra money coming in. "
    – stannius
    Mar 31, 2023 at 14:39
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    Note, also, that the relationship between earnings and benefits are non-linear. The reason those extra 5 or 10 years of work don't seem to show much is because you're already close to the max. Redo the same calculations with a substantially lower income and you'll see more effect. Mar 31, 2023 at 15:58
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    However, SS's life expectancy tables aren't necessarily actuarily accurate. For one thing, SS is based on White people, and Black people have lower life expectancy. I hope it doesn't have to be emphasized, but just in case it does: the term life expectancy" is purely a statistical property of a population. Black people having lower life expectancy doesn't mean that any particular Black person is necessarily going to not live as long. On average, Black people are better off taking it earlier. Apr 1, 2023 at 1:55
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The best practice is to actually wait until you're 70 to start drawing social security, since that bumps the benefit another 30%, which is about a 9% annual increase (compounded). You might get more than that if you invested the benefit, but you'd be introducing risk, and you're not going to find any risk-free investments that earn that much for 4 years (at least not right now).

But yes, in general it's best to wait to draw SS as long as you can, and if you want to "retire" before then, to use other retirement funds that you can start drawing at age 59 1/2, or at least much sooner than 70.

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    I tried age 72 or 70 or 69... but it seems there is a jump from 69 to 70, and then it plateaus at age 70... meaning, if you don't claim retirement at age 70 but wait till 71, you get the same amount anyway, but you lose out a whole year of benefits? Mar 30, 2023 at 15:53
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    I think the benefit increase still caps out at age 70, but I'd have to double check that.
    – Stan H
    Mar 30, 2023 at 16:00
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    by the way, I tried adjusting from age 67 to 68, and it was an 8% increase. Then to 69, 7.4%, then to 70, 6.9% Mar 30, 2023 at 16:00
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    yes my math was off - it plateaus after 46 months (age 70)
    – D Stanley
    Mar 30, 2023 at 16:01
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    I was going off of the 46 months mentioned in the calculator, but was using a birthdate of 1955. Stan is right - it plateaus at age 70 regardless of "normal" retirement age, which is 67 if you're both after 1960, so only 36 months.
    – D Stanley
    Mar 30, 2023 at 16:20
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Wait, using that page, it makes a great deal of difference what years you put the numbers in. So when you say "work 25 years", for example, are you entering numbers from 1990 to 2014, or from 1995 to 2019, or ... when? Because the numbers for each year are adjusted for inflation. So putting them in starting at 1950 gives you 50 more years of inflation than starting at 2000.

Just for example, I tried entering $200,000 each year from 1976 to 1985 and it said the benefit would be $1640. But enter $200,000 each year from 1977 to 1986 and the benefit drops to $1194.

So whatever you did to come up with the numbers you gave may or may not be meaningful.

So let's go back to the formula. Here's what matters:

  1. Benefits are based on your highest-earning 35 years, after adjusting for inflation. If you work less than 35 years, they average in enough zeros to make the total 35. Only income up to the maximum taxable amount counts, so entering $200,000 for every year, most of that is not going to enter into the calculation.

But just for example, if you earned $20,000 every year after adjusting for inflation and you worked for 35 years, then your average income for that 35 years is $20,000. (Duh.) If you only worked 25 years, then they're going to take ( 25 x $20,000 + 10 x $0 ) / 35 = $14,286.

So in the first case your benefit will be based on $20,000, i.e. $1180 per month by my calculation. In the second case it will be based on $14,286, or $1027.

  1. Benefits are reduced if you retire early. If you retire at full retirement age, which is 67 for people born 1960 or later, you can the "basic" benefit. If you retire earlier than that, they reduce your benefit by 5/9 of 1% for every month before 67, up to 36 months, and then by 5/12 of 1% for every month after that. Earliest possible retirement is age 62. So if you retire at 64, that's 3 years or 36 months early. Your benefit would be reduced by 36 x 5/9% = 20%. If you retire at 62, that's 5 years or 60 months early, your benefit would be reduced by 36 x 5/9% + 24 x 5/12% = 20% + 10% = 30%.

So calculating how much benefit you would get by working fewer years versus retiring early means comparing averaging in more zero years versus increasing the number of months of reduction.

If you're calculating using the same number for every year, I presume you're not considering inflation. So fine, let's just ignore inflation. Theoretically, at least, as social security is adjusted for inflation, any inflation between now and when you retire should cancel out.

Oh, and the benefit formula is 90% of the first $1115 of average monthly earnings, 32% of earning from 1115 to 6721, and 15% above that (up to the maximum taxable amount).

So to take your first example, a more meaningful computation is:

25 years @ 160,000 and retire at 62 Average income is (25 x 160,000 + 10 x 0) / 35 = 114,285 114,285/year = 9,524/month Basic benefit = .9 x 1115 + .32 x (6721-1115) + .15 x (9524-6721) = $3217 Retire 5 years early means reduce by 30% gives $2252

Basically, working 35 years instead of 25 years will increase your benefits by 41%. Working until 67 instead of 62 will increase your benefits by 43%. Whether either or both are worth it depends on your personal financial situation, and your desire to work less or retire earlier versus how much money you want to receive in retirement.

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The Social Security benefit is based on highest average earnings of 35 years. For a 65+ year old this is likely the most recent 35, but this formula helps if one had a year or few of unemployment or lower earnings. The example below shows the effect of early benefits or waiting past the full age of retirement. Keep in mind, the COLA each year will impact these numbers. To be clear, I retired at 50, with no further earning subject to Social Security, but each year, my forecast benefits at each age still go up by the COLA. So, the 8% jump in base benefit from 66 to 70 is really an underestimate. If you wish, you can think of it as in "real dollars" which will be inflation adjusted.

One's decision needs to take into account the big picture picture. I say personal finance is personal for a reason. Consider one example;

Neighbor, 63, is diagnosed with brain cancer. When I realized his days were numbered I delicately asked his wife if they started his SS benefit. He was still on leave from his job, and getting a partial salary. I explained to her that their twins, 14, would each get half his benefit until they turned 18. His age 66 benefit was 3X the example/chart. So, at 63, he took $2400, and kids got $1200 each, $4800 total per month. He died 2 years later and the kids are still getting their benefit. His wife told me she set it all aside and have over $100,000 saved for college just from this. When anyone says "never" in finance, they might be right for even 95%+ of their audience, but there's almost always an exception to the advice. (Maybe 'neighbor' was the wrong word, this family are more like friends.)

The other math to keep in mind - When you have other income during retirement, social security can be taxed. A couple with over $44,000 in income will see up to 85% of their benefit taxed. Which results in some pretty high phantom tax brackets. In effect, for a couple, the 12% rate becomes 22.2%. Saving, pretax, can have an unpleasant surprise at retirement. And a case to be made for using a well planned mix of Roth and traditional investment accounts. Even later on, spending down the pretax money doesn't just build up the future Social Security benefit, but can help to reduce its taxation.

Last - it's not tough to find a scenario in which one has an ok retirement account but also some high interest debt. Full retirement age, but still working. Taking their social security benefit at 66 (or whatever the full age is for their birth year) may actually result in an (say) 18%+ return by paying down that debt. At 70, they would have the reduced (i.e, no 8%/yr increase) benefit, but find their monthly interest expense gone. For those who like spreadsheets, this is a fun exercise, seeing how the numbers play out. Again, I am just saying that one needs to look at the big picture when doing the analysis.

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If we look here = https://www.cdc.gov/nchs/pressroom/nchs_press_releases/2022/20220831.htm we see the average life-span of Americans on the decline with it being 76 years of age. If you choose to wait till 67 you'd be expected to live about 9 additional years, 12 payments a year times 9 years = 84 payments of $3,125 = $262,500. But something important to consider is what if you die before reaching 67? Anyways...If you collect at 62 you'd get 12 payments a year times 14 years = 168 payments of $2,200 = $369,600!!! If my math's correct it appears you'd get more money by retiring early???

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    You're not using the right numbers. That's life expectancy at birth, what you need is the expected remaining lifespan at age 62. That number will be higher than 76 years because of the number of people who died before then. Mar 31, 2023 at 20:05
  • The OPs benefit calculation is messed up, so while the principle of what you say is correct, the exact numbers are wrong. The fair comparison is: If you retire at 67, you get 100% of the base benefit amount for the rest of your life. If you retire at 62, your benefit is reduced by 30%, so you get 70% of the base amount for the rest of your life. As we're comparing relative amounts the exact benefit doesn't matter, so let's just say $1000 to use round numbers. If you retire at 67 and live to 76, that's 9 years of benefits = 9 x 12 x $1000 = $108,000. ...
    – Jay
    Apr 1, 2023 at 1:32
  • ... If you retire at 62, that's 14 years of benefits but only 70% of $1000 = $700, so 14 x 12 x 700 = $117,600. You come out ahead by retiring early. With a little algebra you can find that if you live to be about 88 you'll get the same either way, about $133,000. Live longer than that you'll get more by retiring later. Live less than that and you'll get more by retiring earlier.
    – Jay
    Apr 1, 2023 at 1:37
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    @DanIsFiddlingByFirelight True. According to the CDC, cdc.gov/nchs/data/nvsr/nvsr71/nvsr71-01.pdf, average life expectancy for an American at age 60 is another 22.2 years. At age 65 it's another 18.5 years. They don't give numbers for 62 and 67 but one could interpolate. But in any Social security appears to base its formula on the average. That is, if you live an average lifespan, you'll get the same lifetime total benefit whether you retire early or late. Which makes sense. Fair is fair. ...
    – Jay
    Apr 1, 2023 at 1:41
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    ... But for an individual, you may know that you can expect to live longer or shorter than average, and this could affect your decision. Like, I have diabetes, so I figure I will die younger than average. Therefore it makes sense for me to retire early. Someone who is very strong at healthy at age 62 might reason that he will probably live longer than average, so it's to his advantage to retire later.
    – Jay
    Apr 1, 2023 at 1:42
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I also wanted to double check some facts so I asked ChatGPT this:

is it better to take social security benefit at age 62 or 67 or 70?

and it answered:

Deciding when to take Social Security retirement benefits is a personal decision that depends on a variety of factors, including your financial needs, health, and other sources of retirement income. Generally speaking, the longer you wait to claim Social Security retirement benefits, the higher your monthly benefit will be. However, this does not mean that waiting is always the best option for everyone.

If you choose to claim Social Security benefits at age 62, your monthly benefit will be permanently reduced by up to 30% compared to what you would receive if you waited until your full retirement age (which is 66 or 67, depending on the year you were born). If you delay claiming benefits past your full retirement age, your benefit will continue to increase by 8% per year until age 70, when it reaches its maximum amount.

So, if you have a longer life expectancy, good health, and sufficient retirement savings or other sources of income, waiting to claim Social Security benefits until age 70 can be a good option because it allows you to maximize your monthly benefit. However, if you need the income earlier or have a shorter life expectancy, claiming benefits earlier at age 62 or at full retirement age may be a better choice for you. It's important to consider your individual circumstances and consult with a financial advisor to determine the best age to claim Social Security benefits for your situation.

What I think

My goal is not to maximize benefits, but rather, to make sure I have enough money to sustain a comfortable living. My thinking is: if a person can live to 77 only, and the 401k and IRA and social security can support for the living expenses to live comfortably, then there is nothing to worry about. The benefits does not need to be maximized.

The only concern is, what if the person can live to 95 or 98 or 105? When if the social security started at $2200 and then it is not that enough to live comfortably, and if the 401k or IRA are near depleted at that high age.

So my thinking is, if I can use some of those 401k and IRA to pay for the expenses if I do retire at 62, and then not claim social security until at the age of 67 or 70, then I will have $3200 to $3800 in today's dollar, and that'd mean $4000 to $4800 in future dollars, and should be able to keep comfortable living in the medium cost of living area, especially if I have a condo or townhouse and don't have to pay rent.

If for some reason, there needs to be a million or two for medical costs, I may seek treatment in a lower cost country like Singapore or Taiwan, or just leave this world and reincarnate into the next life. But it is my personal belief and choice.

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