Social Security

President Franklin D. Roosevelt signs Social Security Act, on 14 August 1935. Found on The Contemporary Condition.

Social Security came up at lunch yesterday. I guess the new curmudgeons are getting old. Somebody mentioned that you can start drawing Social Security when you are 62. I didn't pay that little factoid any mind until I realized that I am going to be 62 in less than a week! OMG! Horrors! The world is coming to an end! We're all gonna die!

    Whatever, dude. You can choose when you want to start drawing Social Security. The longer you wait, the larger your monthly check, so the first thing you want to do is look at your life expectancy. If you are facing your imminent demise then it doesn't make much sense to wait. If all your ancestors lived to a ripe old age, you may want to wait a few years.

    There is a crossover point where the total payout from the larger payments overtakes the amount you would collect from the smaller payments, but started earlier. Somebody at lunch mentioned 82. My calculations show it to be about 78. In any case, it's basically the average age retired Americans live to.

     But simple addition does not take into account inflation or possible investment income. So if you have a retirement fund in addition to Social Security, any money you get from Social Security can reduce the amount you draw from your retirement fund, so that investment can continue to earn money. So I set up a spreadsheet to compare two examples, and depending on how much you think your retirement fund will make. From this I found the break even points:

• 0% age 78
• 1% age 79
• 2% age 80
• 3% age 82
• 4% age 84
• 5% age 87
• 6% age 94

As you can see, the greater the return on investment the longer it takes to reach the break even point. This spreadsheet does not consider whether Social Security will make cost-of-living adjustments to your payments.