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How to Calculate the Break-Even Age for Taking Social Security

Do you know what your Social Security break-even age is? Here's how to figure it out, and how it could help you decide when to take Social Security, especially during times when retirees' stock portfolios have taken a beating.

“When should I take Social Security?”

I may hear that question more than any other. It’s often followed by a related question: “If I start taking Social Security at 62, I’ll collect earlier but I’ll receive a smaller amount. If I wait, I’ll collect more but for fewer years. What is my break-even age?”

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These questions take on special meaning now that stocks have suffered a bear-market beating. When many retirees’ portfolios may have taken a hit, does it change the equation?

How to Calculate Your Social Security Break-Even Age

The timing of your Social Security benefits is important — it could make a difference of thousands of dollars in your retirement income. And though there are many factors to consider when making a decision about Social Security (more about that later), it’s fairly simple to calculate your Social Security break-even age. Let’s use an example to illustrate the calculation:

Jeff has reached full retirement age and is deciding whether to begin collecting benefits now or to delay for one year. If he collects now, he’ll receive $1,000 per month. But like everyone else, if he waits to take his benefit, it will increase by 8% each year after his full retirement age. In other words, if Jeff waits a year to apply for benefits, he’ll get $80 more, for a total of $1,080 per month. If Jeff decided to wait that year, how long would it take him to break even?

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Essentially, Jeff forfeited $12,000 ($1,000 times 12), but gained $80 a month. (For purposes of this illustration we’re ignoring the “time value” of money.) To find out his break-even age, Jeff would divide $12,000 by $80 a month, which comes out to 150 months or 12½ years. So, if Jeff waits for one year, it will take him 12½ years to get back to even.

Therefore, if Jeff thinks he'll live more than 12½ years, it could make sense to delay taking Social Security because he would eventually come out ahead. If not, he may want to take his benefits now.

If you’d like to perform this calculation for yourself, first determine what an 8% increase would add to your monthly benefit. Then determine how much money in benefits you’d give up by waiting, and divide that sum by the first one. You’ll get the amount of time (in months) it will take you to break even.

Beyond the Break-Even Math: Other Factors That Matter

As I mentioned before, this knowledge can help you decide when to take Social Security, but I strongly suggest you take other factors into consideration, including:

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  • Your health status
  • Your life expectancy
  • Your income needs
  • Any plans for part-time or full-time work
  • Your other retirement resources (investments, pensions, 401(k)s, etc.)

If you are married, you should consider the same factors for your spouse, in addition to thinking about survivor needs. And one more consideration, in my opinion, is that if you need the money now, by all means, take it.

Finally, What About the Stock Market?

A declining portfolio could have an impact on a retiree’s cash flow needs. If a retiree gets to a point where the declining value of his/her portfolio cannot sustain their cash flow requirements, then it would be an appropriate time to consider taking Social Security benefits earlier than previously planned.

Yes, the decision regarding when to take Social Security is complicated, but it’s a decision that should be integral to your retirement planning, and one that many retirees tend to skip. According to Employee Benefit Research Institute’s 2018 Retirement Confidence Survey, only 23% of workers try to maximize their benefits by planning when to claim Social Security.

So, once you’ve determined your break-even age, I encourage you to take the next steps: Consider your individual circumstances, get some guidance, and make a plan. You could save thousands.

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About the Author

Ken Moraif, CFP®

CEO and Senior Adviser, Retirement Planners of America

Ken Moraif, CFP, is CEO and senior adviser at Retirement Planners of America, a Dallas-based wealth management and investment firm with over $4.3 billion in AUM and serving over 8,000 households (as of May 2019). He is also the host of the radio show "Money Matters with Ken Moraif," which has offered listeners retirement, investing and personal finance advice since 1996.

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