I did some more work in my spreadsheet to compute a whole montage of break-even periods, of deferring SS benefits.
To summarize,
* the breakeven period for most combinations of starting age and # of years of deferral is between 12 and 15 years.
* The famous "defer one year past FRA to get 8% more" takes 12.5 years to break-even.
* The shortest break-even is deferring from 62 to 70 -- 10.5 years.
* The time to break-even for a 67 FRA is not much different than for a 66 FRA. Where the 67'ers get hurt is in the size of the benefit, not the number of years it takes to break-even. At all ages, the person with 67 FRA gets less money than the person with the 66 FRA.
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I think that the problem with all these discussions and articles is that the usually are focussing on the wrong things.
* You get a higher monthly benefit if you defer --- indisputable, simple a matter of math.
The thing that matters here is how many years it takes until you come out ahead by deferring. And the unknown is whether you'll still be alive at that time.
The other thing that matters is the shape of the cash flow. No money now but more later, vs. some money now but less later. It does you no good to have more money later if you are in bad health and can't enjoy it.
* Deferring SS as longevity insurance is cheaper than buying a commercial annuity. Again, no dispute -- this is absolutely true.
The thing that matters here is not which is cheaper, what matters is if you want that annuity in the first place. If you do, then SS is the place to get it. If you don't want it, it doesn't matter which is cheaper since you aren't going to buy it anyway. It makes no sense to buy something you don't want, just because it is cheap.
To summarize,
* the breakeven period for most combinations of starting age and # of years of deferral is between 12 and 15 years.
* The famous "defer one year past FRA to get 8% more" takes 12.5 years to break-even.
* The shortest break-even is deferring from 62 to 70 -- 10.5 years.
* The time to break-even for a 67 FRA is not much different than for a 66 FRA. Where the 67'ers get hurt is in the size of the benefit, not the number of years it takes to break-even. At all ages, the person with 67 FRA gets less money than the person with the 66 FRA.
=========
I think that the problem with all these discussions and articles is that the usually are focussing on the wrong things.
* You get a higher monthly benefit if you defer --- indisputable, simple a matter of math.
The thing that matters here is how many years it takes until you come out ahead by deferring. And the unknown is whether you'll still be alive at that time.
The other thing that matters is the shape of the cash flow. No money now but more later, vs. some money now but less later. It does you no good to have more money later if you are in bad health and can't enjoy it.
* Deferring SS as longevity insurance is cheaper than buying a commercial annuity. Again, no dispute -- this is absolutely true.
The thing that matters here is not which is cheaper, what matters is if you want that annuity in the first place. If you do, then SS is the place to get it. If you don't want it, it doesn't matter which is cheaper since you aren't going to buy it anyway. It makes no sense to buy something you don't want, just because it is cheap.
