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What is better? To retire at 65 1/2 and spend nothing but retirement savings until reaching age 70. At 70 take social security for both me and my wife and get the maximum benefit. I would spend $430k of my 401k savings but receive an additional $900 per month in social security for life.

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    What is your best guess for the life expectancy of both you and your wife? I know it sounds macabre, but that is going to be a major determinant for which option is better. – JohnFx Feb 1 '16 at 23:05
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    BTW: I would not trust such an important decision to an answer from the Internet. Find a retirement planner that understands SS backwards and forwards. This decision is FAR more complex than you are thinking. For example the age you can claim benefits is not the same for everyone, the amount you get changes monthly depending on when you claim, and whether you or your spouse claim first (or at the same time) makes a big impact. – JohnFx Feb 1 '16 at 23:26
  • Social Security benefits increase at (IIRC) 8% a year. Can you find an investment that's guaranteed to do better? – jamesqf Feb 2 '16 at 6:07
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    @jamesqf Your assessment of the situation is not how one should think about it. Even if one has an investment that earns 0% each year, that investment has the same value at age 70 as it did at age 65 (ignoring inflation). On the other hand, if the SS benefit is not claimed at age 65 but delayed till age 70, yes, the amount of the benefit will increase at 8% per year and the OP will get a larger benefit starting at age 70, but at age 70 his "investment" will have value 0 because he never received the money in the first place! – Dilip Sarwate Feb 2 '16 at 16:06
  • @Dilip Sarwate: I suggest that it's your assessment that's wrong. It's exactly the same as e.g. buying an annuity (the "investment"): if you pay $X, the monthly amount you receive will be larger if you start taking it at 70 vs 65. Assuming you have adequate funds to live in the intervening period, you're better off waiting if the interest rate is better than you can get elsewhere. (Of course this is more complicated if you're married, or want to leave money to your heirs if you die early.) – jamesqf Feb 2 '16 at 18:56
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As JohnFx suggests in a comment, one's personal life expectancy is something to take into account in deciding whether to start taking Social Security benefits early or to defer them till age 70 "because the monthly benefit increases till age 70 but not beyond that." Roughly speaking, if you live exactly as long as the official estimate of life expectancy, then the total sum of the monthly benefits that you will receive over your lifetime is the same regardless of whether you start earlier or at age 70. That is, the so-called increase in the Social Security monthly benefit if you delay taking benefits beyond your normal retirement age is at least in part due to the fact that a "fixed pot of money" is being divided into larger chunks at age 70 (fewer months to live) than at age 67 (more months to live).

Thus, as a simple rule of thumb, if you are in poor health or heredity is against you and so you don't anticipate living a long time after retirement, start your Social Security benefits early. If you are in excellent health and everyone in your family lived past 90 years of age, start taking benefits at age 70.

Note that this is just one part of the big picture. Spousal benefits and spousal life expectancy is also part of the decision, etc.


Contrary to what jamesqf seems to be arguing vigorously for in the comments on the main question as well as on Kate Gregory's answer, if one chooses to delay starting Social Security benefits at age 65, then the monthly benefit increases at approximately 8% per year until age 70, but when the benefits start at age 70, the recipient does not get a lump sum consisting of the sum of all the monthly benefits that were foregone from 65 to 70. So, the notion of "do you have an investment in mind that will increase at 8% per year" is not relevant.

  • If you take the benefit at age 65 and invest it (instead of spending it for living expenses), you have (hopefully) all that money plus some gains in that investment at age 70. Your benefits continue at that same lower level past age 70 too.

  • If you don't take the benefit at age 65 and wait till 70, there is no investment (your living expenses are covered elsewhere as in the previous scenario), and you have 0 investment at age 70. Starting at age 70, you get a monthly benefit that is higher than in the previous scenario, and you can start investing it from then onward.

Under both scenarios, if you live until exactly your life expectancy (perhaps committing suicide on that day so as to not prove the government wrong), the total sum of money that you receive under both scenarios is the same. If you are fortunate enough to have not needed to use any of the SS benefit for living expenses and invested it all, then we can discuss what rates of growth can be expected from the investment, and whether you die richer in one scenario versus the other. But the sad truth is that for most Americans, the Social Security benefit is a major source (if not the only source) of their living expenses in retirement, and very little of the money is likely to be invested.

  • "If you take the benefit at age 65 and invest it..." Yes, but where will you find an investment that is (pretty well - barring revolution &c) guaranteed to return 8%. Yes, if you save & invest everything between 65 and 70, you will have the lump sum plus investment returns, but if at age 70 you invest that total, you will probably see less income going forward than you would get from the increased SS payment. – jamesqf Feb 6 '16 at 18:20
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    @jamesqf Once again, I wish you all the best in your retirement, and pray to God that you will have enough other income that you can invest your Social Security monthly payment in exactly the manner that will yield the maximum benefit to you as determined by your understanding of the facts. – Dilip Sarwate Feb 6 '16 at 22:33
  • Instead of wishing, why not just do the math, which will quickly demonstrate that you're wrong? – jamesqf Feb 7 '16 at 5:40
  • @jamesqf Instead of bloviating as you have done above and in comments on the main question, write an answer showing how you arrived at your conclusions and explaining how my answer is incorrect, or take the cowardly way out and down-vote my answer as "Not useful." – Dilip Sarwate Feb 7 '16 at 20:11
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Using your numbers, the answer is clearly NO. Ignore interest, inflation, and the time value of money. If I asked you to give up $430,000 now for $900 a month (11,000 a year) for the rest of your life, how long would it take to "earn back" the $430,000? Well, after FORTY YEARS of $11,000 a year, you would have $440,000. Are you likely to live past age 110? No. Using the numbers you've provided, you're ahead taking it at 65.

However, I don't think your numbers are right. If you're going to use up $430,000 in less than 5 years, you're going through over $7000 a month, and taking Social Security now will not pay you that. So presumably you're going to use up some of that $430,000 no matter what and you should be looking at the difference and seeing how long the payback period is. Will you break even at age 80, 90, 100? Perhaps it's worth taking the time to do the calculation with interest, inflation, taxes, and so on. Typically the people who decide how much extra you get for delaying are taking expected lifespans into account, so I would expect you to get a number that makes the decision quite difficult.

Another relevant question is this: If you plan to spend $7,000 a month of after-tax money, how big a difference is $900 a month anyway? Seems like bringing your spend down by 13% would be a better goal.

  • Can you try rephrasing this answer? I've re-read it about three times and don't follow what you are saying. Where are you getting the 40 years from? – JohnFx Feb 1 '16 at 23:08
  • 11,000 * 40 = 440,000 – Kate Gregory Feb 1 '16 at 23:45
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    Kate, respectfully, the math doesn't work. He will blow through $440K in 4.5 years, 54 months? That's $8148/mo. Say he takes SS now. He will still be drawing down his saving, even if only $5500/month or so. OP needs to spell out the current benefit vs future benefit for this to make any sense. – JoeTaxpayer Feb 2 '16 at 1:27
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    @jamesqf the 430 came from the OP, not my guess at the benefits that are being given up. – Kate Gregory Feb 3 '16 at 14:19
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    @Kate Gregory: Then either the OP's stating his entire retirement spending, not the SS benefit he would forego, or he's really bad at math :-) – jamesqf Feb 3 '16 at 19:55

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