There is always talk about Social Security not being sustainable. It would be concerning if it were not available for future generations that have already paid into it. Regardless of whether that is true, it is a good idea to not count on it and instead, consider it a bonus.
I’ve recently had people tell me that they will have to work until they reach 67 so that they will be able to get their full retirement benefits. But do you?
I understand that the longer you wait the more money you will receive, but I wanted to see if the numbers supported working longer just to get a little more money. In my case, according to my current numbers on the Social Security website, waiting until age 67 would be a difference of $11,556 a year, or $963 a month.
Now, I’m not one to turn down nearly $1,000 a month, but as I’ve written before, I am hoping to retire when I’m 62. So what would it look like if I retired at 62, but waited to start receiving Social Security benefits?
For this example, I’m going to use a nice round number of $100,000 that we want to live off annually in retirement. I calculated what our annual expenses will be once all the kids are out on their own and we would only need around $40,000 a year to live off of.
That is based off today’s numbers and who knows what will happen with inflation. I think $100,000 will be plenty and we won’t need that much to live. I do like using a larger number though, to make sure we will have enough and also account for travel and doing great things for our children, grand children, and others.
As I stated in June, my goal is to have $2 million in our retirement accounts by age 62. If we don’t, that may delay my retirement, but for this example we are going to assume we will hit that mark.
I am also being a little more conservative than before with the annual rate of return in these numbers and calculating it at 8%.
Receiving benefits at age 62
At age 62 my current Social Security benefits should be $25,044 annually. I am assuming this this will go up over the next 16 years since your benefits are based off your highest 35 years of earnings. Even if I never got another raise (which better not happen), my earnings the next 16 years will push out my lower earnings in my 20s.
At that rate, we would only need to withdraw $74,956 from our retirement accounts to reach a $100,000 annual income.
With receiving benefits earlier and keeping more money in our retirement accounts to grow at an average 8% rate of return, by the time I’m 82 that $2 million would have grown to an estimated $5,542,413 with compound interest.
Receiving benefits at age 67
Retiring at age 62 and putting off receiving benefits until 67 will result in withdrawing the full $100,000 from our retirement accounts for the first 5 years. What impact can that have?
My annual benefits have risen to $36,600, but at age 82 our $2 million would grow to an estimated $5,389,490. That is a negative difference of $152,923. That is around $27,000 more than the first 5 years of Social Security benefits when taken at 62.
Receiving benefits at age 70
At age 70, if it’s not insolvent, I would receive $45,480 in benefits annually. By this time, we have taken $100,000 out of our retirement accounts annually for 8 years.
When I reach age 82, our retirement account balance would be an estimated $5,257,228. That is a negative difference of $285,185, which is about $84,833 more than the 8 years of benefits when taken at 62.
But what would happen if Social Security was no longer there?
No benefits
Like I said, you shouldn’t count on a government program to make sure you are able to survive in retirement. So how would Christy and I fare if Social Security was insolvent?
With an annual withdraw rate of $100,000 a year, at 82 our nest egg would have grown to approximately $4,279,622. I think we’ll be alright.
To me, I think the clear winner is taking it early so that you can let compound interest do it’s thing in your retirement accounts. But, I have 16 more years to read and learn to see if there is something I’m missing.
Now we just need to get the $2 million all of this is based on and keep it in good investments to weather any storms in the market.