SS break even formula?

[brownred]

Hello, I am having difficulty figuring out the SS break even point. Can someone post the simple formula?

Example:
Say I would get $800 a month now.
If I wait 7 years I would get $1800 a month.
What would be the break even point or how many years would I break even.

Can you please show how you figured it too?

Thanks.

 

[Ready]

Ignoring the interest that you might earn on the $800 should you invest it, the way I would look at this is to say:

Option A) $800 immediately would be $9,600/year x 7 years = $67,200.

Option B) Wait 7 years, then get $1,800, or an additional $1,000 per month, which would be an additional $12,000 per year.

$67,200 / 12,000 = 5.6 years. I'm not sure what your current age is, but let's say it's 63, and your deciding whether to take it now or wait until 70. With these figures, you would need to live until 75.6 years to break even. If you live past 75.6 years, you would be better off waiting.

This does not factor in what the $800/month might be worth in 7 years if you invested it in CDs, stocks, bonds, etc. So depending on whether you really would intend to invest it, you might adjust the numbers a bit.

It always seems to come down to guessing how long you will live, assuming you have the financial ability to wait seven years before you start collecting. Generally people only take social security at 62 or 63 if they have no other means to pay their bills.

 

[MasterBlaster]

Can you tell us how old you are and when you plan on dying ?

 

[brownred]

I will be 55 this year and can retire if I want to using the level income option through my company.

Level income means (and this is hard for me to explain) that my company, if I retire this year at 55 will front me SS in the amount of about $800 a month. When I reach 65, my company will take my SS. In other words I will receive $800 SS for the rest of my life, it will never go up or down.

People in my family tend to die in the mid 70's, I assume I will be no different.

I will also start getting my pension if I retire this year of $36,000 + $800 a month = $45,600 for the rest of my life.

Also in my post I meant say the break even point in 10 years, not 7.

Hope this clarifies thing more.

Thanks

 

[Gumby]

Hello, I am having difficulty figuring out the SS break even point. Can someone post the simple formula?

Example:
Say I would get $800 a month now.
If I wait 7 years I would get $1800 a month.
What would be the break even point or how many years would I break even.

Can you please show how you figured it too?

Thanks.

X = years collecting higher amount amount.
X +7 = years collecting lower amount

Solve for X where (X+7)(800) = (X)(1800)

800X + 5600 - 1800X = 0

-1000X + 5600 = 0

5600 = 1000X

5.6 = X

So: if you wait, you would break even 5.6 years after starting the higher amount.

If you are think about social security, if you were born in 1960 or later, full retirement age is 67, and there is a 6% penalty for every year early, so you get 70% at 62.

The equation then is:
X = years after age 67
Y = full Social Security amount at normal retirement age

(X)(Y) = (X+5)(0.7 Y)

XY = .7XY + 3.5Y

X = .7X + 3.5

.3X = 3.5

X = 3.5/.3 = 11.67 years (and note that this is independent of Y -the amount of social security)

So the breakeven point for taking social security at 62 will occur when you are 78 years and 8 months old. If you expect to live longer than that, you would be better off waiting to full retirement age.

 

[ERD50]

I'll look at this differently. While a break-even calculation makes for an interesting data point, it is academic unless we know our date of demise ahead of time.

So I suggest you look at it as 'longevity insurance'. Though you think you may only make mid 70's, what if you are wrong? I think you'll find that delaying SS is by far the cheapest 'longevity insurance you can buy' to cover a 'what-if'. The main issue for most is whether they can afford to delay.

Like fire or car insurance, you generally don't look at break-even, you are trying to insure against a risk.

-ERD50

 

[robnplunder]

So the breakeven point for taking social security at 62 will occur when you are 78 years and 8 months old. If you expect to live longer than that, you would be better off waiting to full retirement age.

Based on what I know, average American man at age 50 have 50% chance of living past 82. Add 3 - 5 more years for woman. People in this forum are optimistic bunch and FIRECalc proof themselves for age 95. But 1/2 of the people in this forum will start drawing from SS at age 62 vs 70 according to poll I've started.

 

[Gumby]

Based on what I know, average American man at age 50 have 50% chance of living past 82. Add 3 - 5 more years for woman. People in this forum are optimistic bunch and FIRECalc proof themselves for age 95. But 1/2 of the people in this forum will start drawing from SS at age 62 vs 70 according to poll I've started.

Ignorance of the mortality tables might be one reason that people choose to take SS early, but that's not the only reason. In my case, the young wife will likely survive me. She is a teacher who won't be eligible for SS on her own and won't get benefits based on my record due to the GPO. For us, it makes sense for me to take SS early, so as to preserve our nest egg to support her after I die and the SS checks stop entirely. I know there are others on the board who have made the same calculation.

 

[brownred]

I and single and no kids and I may be looking at this all wrong but my mind set is get it while you can.
Also I am literally sick of the company I work for.
I am tired of getting up and going to bed when I don't want to.
I also have about $500,000 in 401K and Roth.

Not trying to sound doom and gloom here but if I am lucky to live into my 80's what am I going to need with lots of money?

 

[ggbutcher]

I second ERD50's view on SS as insurance, unless it's your only income source, in which case its more of an insurance claim...

 

[Spanky]

I second ERD50's view on SS as insurance, unless it's your only income source, in which case its more of an insurance claim...

.. uncle Sam is hoping that no one would file any claim.

 

[homestead]

Here is a calculator that helps.
Social Security calculator: retirement planning for you and spouse.

 

[pb4uski]

I and single and no kids and I may be looking at this all wrong but my mind set is get it while you can.
Also I am literally sick of the company I work for.
I am tired of getting up and going to bed when I don't want to.
I also have about $500,000 in 401K and Roth.

Not trying to sound doom and gloom here but if I am lucky to live into my 80's what am I going to need with lots of money?

WADR, I think the "get it while you can" argument is short sighted.

Beyond that it depends on your living expenses and what you need to live on in retirement. If you retired now you would have $800/month from SS and ~$1,650 from your investments using a 4% WR so a total of $2,450/month or $29,400 a year(in today's dollars/spending power). If your lifestyle is such that you could survive on $29,400 a year (including taxes, medical insurance, deductibles and co-pays, car replacements, major home improvements as needed, etc.) then you may be ok. If not, unless you have other sources of income in retirement then you probably need to keep working to get higher SS and build up that nestegg.

Have you run your situation through FireCalc?

 

[brownred]

WADR, I think the "get it while you can" argument is short sighted.

Beyond that it depends on your living expenses and what you need to live on in retirement. If you retired now you would have $800/month from SS and ~$1,650 from your investments using a 4% WR so a total of $2,450/month or $29,400 a year(in today's dollars/spending power). If your lifestyle is such that you could survive on $29,400 a year (including taxes, medical insurance, deductibles and co-pays, car replacements, major home improvements as needed, etc.) then you may be ok. If not, unless you have other sources of income in retirement then you probably need to keep working to get higher SS and build up that nestegg.

Have you run your situation through FireCalc?

I think you forgot to include my $3,000 a month pension to the $2,450.

As far as FireCalc...I have tried it and it appears I will do ok if I'm inputting right. I get confused on the Other income/spending page. I don't fully understand the Off Chart Spending section.

 

[pb4uski]

I think you forgot to include my $3,000 a month pension to the $2,450.

As far as FireCalc...I have tried it and it appears I will do ok if I'm inputting right. I get confused on the Other income/spending page. I don't fully understand the Off Chart Spending section.

You're right, I didn't see your mention of the pension and it makes a big difference. There are other tools that you can use to get comfortable with the "Do I have enough" question. I particularly like Quicken Lifetime Planner (part of Quicken Deluxe and higher) as it is intuitive and easy to use. But if you go through a few tools and the answer is the same then you should be ok.

IIRC off-chart spending is for non-routine expenditures such as major home repairs, vehicle replacements, a retirement home purchase (or RV), paying for a kid's wedding, college or whatever that isn't included in you regular annual spending amount.

 

[brownred]

You're right, I didn't see your mention of the pension and it makes a big difference. There are other tools that you can use to get comfortable with the "Do I have enough" question. I particularly like Quicken Lifetime Planner (part of Quicken Deluxe and higher) as it is intuitive and easy to use. But if you go through a few tools and the answer is the same then you should be ok.

IIRC off-chart spending is for non-routine expenditures such as major home repairs, vehicle replacements, a retirement home purchase (or RV), paying for a kid's wedding, college or whatever that isn't included in you regular annual spending amount.

Ok, Off Chart Spending doesn't really apply to me then.

I will look into Quicken Lifetime Planner. Is there somewhere I can get an idea of how it works before I purchase it? Id hate to buy it then find it to difficult for me to use.

I try one internet retirement calculator after another and get EXTREMELY different results. So as a result I don't trust any of them.

 

[pb4uski]

You could try the retirement planner in MS Money's sunset edition (which is free from Download Money Plus Sunset Deluxe from Official Microsoft Download Center). I found it very similar to Quicken's Lifetime Planner but just not quite as intutive or easy to use.

QLP was easier for me because I already had all my investments and financial info in Quicken (which I have used for about 20 years).

 

[FANOFJESUS]

I use this Social Security Benefits Calculator

 

[Ready]

I and single and no kids and I may be looking at this all wrong but my mind set is get it while you can.
Also I am literally sick of the company I work for.
I am tired of getting up and going to bed when I don't want to.
I also have about $500,000 in 401K and Roth.

Not trying to sound doom and gloom here but if I am lucky to live into my 80's what am I going to need with lots of money?

I think you are dealing with several different issues here that should not be commingled.

If you prefer to stop working, and you feel you have enough saved to do so, go for it. That should not affect whether you take your social security now or ten years from now. With a portfolio of $500K, you clearly have enough to take $800/month from the portfolio for the next ten years, knowing that if you do, ten years from now you will get $1,800 instead of $800. So it just comes down to guessing how long you will live and then making the best decision from there. You have the break-even analysis now, so it should be relatively simple to make the decision based on your longevity estimate.

 

[rothlev]

Level income means (and this is hard for me to explain) that my company, if I retire this year at 55 will front me SS in the amount of about $800 a month. When I reach 65, my company will take my SS. In other words I will receive $800 SS for the rest of my life, it will never go up or down.

I think this type of plan increases your pension during the years you do not collect social security, and then lowers your pension after you start collecting social security, so the net is your income stays level. I would be very leary of taking a reduction in my pension . Your pension does not "take your social security" from you.

 

[Midpack]

It's pretty straightforward calculating exact breakeven ages, but it's often not that simple.

Depending on taxes, inflation, and investment returns, the range of break-even ages [of benefits begun at age 62 to age 66] goes from 81 to 86 1/2. There is a similar range of break-even ages in the comparison of benefits begun at age 66 to age 70—from the age of 84 to nearly 87.

Besides future rates of inflation and investment returns, Lemons also looks at claimants' federal income-tax brackets and at the percentage of their Social Security benefits that are subject to federal income taxes. This varies from zero for people in the lowest 10 percent federal tax bracket, to 50 percent for those in the 15 percent bracket, to 85 percent for people in all higher tax brackets. No more than 85 percent of Social Security benefits are taxable, regardless of income levels.

While these comparisons are relatively straightforward for one person's benefits, Social Security benefits often involve a spouse and family members, too. Lemons doesn't know, of course, what your family situation is like. But he does emphasize that people need to factor in spousal benefits and survivor benefits to a spouse and non-adult children to do their own comparisons.

What's Your Social Security Break-Even Age? - US News

 

[rescueme]

Can you tell us how old you are and when you plan on dying ?

Exactly....

I/wife never computed our SS on our "break even point".

Money is for the living - not the dead ...

We computed the scenerio (if you wish, use: Social Security Benefits Evaluator - T. Rowe Price and just plug in a dummy name, along with your SS projections.)

We found (for us), it makes sense for me to file/suspend at age 66, FRA (yes, I'm age 66 ) and for my wife (who will be FRA -age 66, in May - three months from now) to claim a 50% benfit based upon my SS earnings, and both claim "our own" at age 70. BTW, that's less than four years away, for me.

Our goal is two-fold; maximize our SS while we are living, and maximize DW's SS benefit upon my passing, since the stats show that I will go to the "great beyond" before she.

We do have the advantage of being retired (more than sevaral years) and are able to fund our retirement "adventures" without SS (e.g. if you need SS income, then claim it at early/normal FRA date). However, we're blessed not to look at SS as more than an income that will allow us to accumulate assets to be passed on to our (disabled) son.

Two things about SS; "break even" dates don't mattter (as I stated before - money is for the living). As for "over accumulated assets at death" (for those that wish to spend every last penny before they shove off this "mortal coil"), I just say that I would rather die with money, than live without it.

FWIW...

 

[HFWR]

A calculator and a chart from the SSA...

Early or Late Retirement

Early or delayed retirement

 

[brownred]

I think this type of plan increases your pension during the years you do not collect social security, and then lowers your pension after you start collecting social security, so the net is your income stays level. I would be very leary of taking a reduction in my pension . Your pension does not "take your social security" from you.

Yes, I think you are correct, for some reason I just can't explain that correctly!

 

[brownred]

I want to thank everyone for your responses. It's helped and given me things to think about that I haven't thought about.
Keep the thoughts coming if you please!