When Should I Take Social Security?

I can start collecting Social Security Benefits any time from age 62 to 70. The earlier I take them, the less my benefit will be, so there is some strategy to deciding when to pull the trigger. I want to figure out the ideal time to do it, and I'm also curious how much money I would have had to save up to provide the same stream of income that Social Security will provide. So I did a little calculating to see how much difference it makes.

First I go to the Social Security Benefits Estimator to see how much I can get at various ages. It will tell you your actual benefit based on prior work history and whatever you input as the annual income you expect to have from now until you do retire. You can see three options, the amount you'll get at age 62, the amount you'll get at your regular retirement age (66 or 67, depending on your birth date), and the amount you'll get if you wait until age 70. The numbers for a fictional woman born in 1960 earning $40,000 a year are below:

  • Age 62: $930
  • Age 67: $1,382
  • Age 70: $1,754

Next I need to figure out how long I might expect to get these benefits. To do that, I went to the Life Expectancy Calculator to see how many additional years I might live at each of these ages. Interestingly, the older you are, the longer your life expectancy is, so the remaining years change if you compute it at each of these ages. I came up with the following values for my fictional woman born in 1960:

  • Age 62: 25 years
  • Age 67: 21 years
  • Age 70: 18 years

Then I compute the total benefits over that period of time to see my expected lifetime benefits for each choice:

  • Age 62: $279,000
  • Age 67: $348,000
  • Age 70: $379,000

I see that I will get significantly more money over my expected lifetime if I wait to start collecting Social Security. If I live longer than expected, the difference will be greater. If I live less than that, it will be less.

Having Social Security means I don't need to have quite as much saved up in personal savings, and I was curious how much that bought me. To compute that, I used the Present Value of an Annuity Calculator to see what that was. I input the annual benefit ($11,160) over the expected number of years (25) and assumed I would probably be able to count on making only about 4% a year for a pool of money that was conservatively invested. Based on those assumptions, my $930 a month benefit over 25 years is the equivalent of having $174,000 saved up. Meaning that is $174,000 that I don't have to save myself.