Calculating Your Social Security Break-Even Age
The time of your Social Security benefits is authoritative — it could make a difference of tens of thousands of dollars in your retirement income over your life. And though there are many factors to consider when evaluating Social Security benefits ( more about that by and by ), it ’ randomness fairly simple to calculate your Social Security break-even historic period. Let ’ s habit an model to illustrate the calculation :
Skip advert Our conjectural subject, Jeff, has reached fully retirement senesce 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 calendar month. But if he waits to take his benefit, it will increase by 8 % each year after his broad retirement senesce ( until he reaches age 70, when his benefit reaches its utmost possible ). therefore, if Jeff waits a class to apply for benefits, he ’ ll get $ 80 more, for a sum of $ 1,080 per month. If Jeff decided to wait that class, how long would it take him to break even ? basically, Jeff forfeited $ 12,000 ( $ 1,000 times 12 ), but gained $ 80 a month. ( For purposes of this exemplification we ’ ra ignoring the “ time value ” of money. ) To find out his break-even historic period, Jeff would divide $ 12,000 by $ 80 a calendar month, which comes out to 150 months, or 12½ years. sol, if Jeff waits for one year to start taking his Social Security benefit, it will take him 12½ years to get back to evening .Skip advert Based on the above, if Jeff thinks he ‘ll live more than 12½ years, it could make sense to delay taking Social Security, because he would finally come out ahead. If not, he may want to take his benefits now. If you ’ d like to perform this calculation for yourself, first gear determine what an 8 % increase would add to your monthly benefit. then determine how much money in benefits you ’ vitamin d give up by waiting, and divide that sum by the first gear one. You ’ ll get the sum of time ( in months ) it will take you to break even .
The Break-Even Math on Starting Social Security Early at 62
immediately let ’ s expect at it from the opposite side. Say you are considering whether to take your Social Security benefits early, before reaching your entire retirement age. hera ’ s another conjectural model for that calculation : Joe is getting ready to turn 62, the youngest old age at which you can begin taking benefits. His broad retirement age is 67, and if he waits until then, his benefit would be $ 1,000 per month. But he was thinking about starting properly off alternatively. At 62, his benefit would be $ 700 per calendar month ( 30 % less than his broad benefit would be ). During those first five years, he would have received a expansive total of $ 42,000 in benefits. But at what age would waiting until 67 average he would finally come out ahead ?Skip advert
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The mathematics looks like this : Take the broad measure of benefits Joe would have received by age 67 ( $ 42,000 ), divide that by what he would have forfeited each calendar month by taking them early ( $ 300 ) and you get 140 months. That ’ south 11 years and eight months beyond his full retirement long time of 67 — meaning old age 78 years and eight months. It would not be until that historic period that Joe would begin to come out ahead .
Beyond the Social Security Break-Even Math: Other Factors That Matter
As I mentioned before, calculating your sociable Security break-even historic period can help you decide when to take your benefit, but I strongly suggest you consider other factors, including but not inevitably limited to the surveil :
- Your health status. Make sure to consider the cost to your heath as well as your checkbook. You may want to retire early due to health concerns, or you may need to continue to be employed in order to keep your health insurance.
- Your life expectancy. There are several online tools that can help you estimate your life expectancy, including the one at Livingto100.com and Northwestern Mutual’s calculator.
- Your income needs. Do you still have a mortgage? Dependents? A business loan? Add up your expenses (don’t forget taxes) and be pragmatic about how much you’ll actually need.
- Any plans for part-time or full-time work. Working after retirement can bring in extra cash and keep you involved in your community. But if you work after retiring early, be aware that Social Security has caps on the amount you can earn without having your benefits reduced.
- Your other retirement resources. If you have a portfolio of investments, a pension, a 401(k) or other resources to rely on in retirement, that could change the equation for you. If you’re set up well financially, congratulations! You may be able to retire early. If you haven’t been so lucky, consider waiting so you can grow your Social Security benefits, and feel more comfortable about when you do retire.
Skip advert If you are married, you should consider the lapp factors for your spouse, in addition to thinking about survivor needs. Remember, when one member of a copulate passes off, the other will only receive the larger of the two people ’ south benefits. The smaller of their two Social Security benefits just disappears at that point. so, the higher-earning extremity of the pair may want to delay claiming deoxyadenosine monophosphate retentive as potential to grow their bigger benefit to its maximum for their spouse to live on. And one more retainer about when to claim your Social Security benefit, in my opinion, is this : If you need the money now, by all means, take it .
Finally, How Does the Stock Market Figure into the Equation?
by and large speaking, the U.S. livestock commercialize has been on a record-setting discharge, but its ongoing performance is never a surely thing. What goes up can go down finally, and a declining portfolio could have an impact on a retiree ’ randomness cash menstruate needs. If a retiree gets to a point where the declining rate of their portfolio can not sustain their cash hang requirements, then it would be an appropriate time to consider taking Social Security benefits earlier than previously planned. Yes, deciding when to take Social Security is complicated, but it ’ sulfur even a decision that is much integral to retirement design. It ’ sulfur besides a decision that many retirees seem to disregard. 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 adjacent steps : Consider your individual circumstances, get some steering, and make a design. It could make a remainder of tens of thousands for you over the years .
All expressions of opinion reflect the judgment of the author, Ken Moraif, as of the date of publication and are subject to change. Ken Moraif is a controlling owner and investment adviser representative of MMWKM Advisors, LLC, doing business as Retirement Planners of America, which is an SEC registered investment adviser. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that Retirement Planners of America has attained a certain level of skill, training, or ability. Ken Moraif has worked in the financial services industry since 1988. He has been a CERTIFIED FINANCIAL PLANNER™ professional since 1998. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. Readers should not rely on this content as the sole basis for any social security, financial planning, investment or related decisions. A professional adviser should be consulted and/or independent due diligence should be conducted before implementing any of the options directly or indirectly referenced. Past performance does not guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy will be profitable or equal any historical performance levels. This article should not be construed as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice. All investment strategies have the potential for profit or loss. Any target referenced in this article is not a prediction or projection of actual results and there can be no assurance that any target will be achieved. Retirement Planners of America makes no warranty, express or implied, for any decision taken by any party in reliance upon the information discussed. While information presented is believed to be factual and up-to-date, Retirement Planners of America does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.
This article was written by and presents the views of our contributing adviser, not the Kiplinger column staff. You can check adviser records with the SEC or with FINRA
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About the Author
Ken Moraif, CFP®
chief executive officer 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 besides the host of the radio show “ Money Matters with Ken Moraif, ” which has offered listeners retirement, investing and personal finance advice since 1996 .