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Not my numbers, but hypothetical with your numbers.
Someone born Jan 2, 1960... so FRA of 67. Claims at age 62 or 70 and lives to 90. Invests differential cash flows at 5%.... or IOW, invests their entire benefit until they are 70 and then at age 70 withdraw the excess of their age 70 benefit over their age 62 benefit and no longer save their age 62 benefit, so cash flow is the same as their age 70 benefit.
If the person claims at 62 then they are behind until they are between 88 and 89.... from 89 onwards they are ahead. With a 4% return the crossover is between 85 and 86.... between 83 and 84 at 3%.
However, your 5% return from the G Fund includes inflation and the cash flows exclude inflation, so the more appropriate rate to use would be 3% rather than 5% (assuming 2% inflation which conveniently is the Fed's long term target rate for inflation)... the second table is the same as the first but with the SS benefits inflated at 2% annually.... note that the breakeven point is the same as the uninflated cash flows discounted at a real rate of return of 3%. With inflation considered (or a real rate of return) the person claiming at age 62 comes out $85k behind at age 90.
https://www.longevityillustrator.org/
Have you looked at opensocialsecurity.com? It takes these factors into account plus mortality (the likelihood of your living to receive those benefits).
Thank you very much for that. Clear numbers. That's a good comparison. It makes an assumption I don't make though. I don't assume cash flows to be the same at 70 in my example. IOW, the individual continues to live off the inflation adjusted 62 benefit. He doesn't withdraw from the savings account to make up for the difference between the 62 and 70 benefit. Rather he lets it grow.
That assumption changes things since in my scenario, the individual continues to live on less (the 62 amount vs the 70 amount) while the savings account continues to grow.
I used my actual numbers from my SSA statement. At 62, I am estimated to receive $2,109 a month. Invested monthly at 5% for 8 years, that's in the neighborhood of a quarter of million dollars at age 70. (Invested at only 3% net still puts it well over $200k.) If that continues to grow (vs withdrawing a little each month to make up for the amount short the age 70 amount), it reaches somewhere around $500k to $750k, depending on your 3% or 5% return. (Although I would argue that over 28 years, you can probably do better than 5%, but I'm keeping it conservative. Not sure if you saw the accompanying spreadsheet but it shows all of the investment balances out to age 100.)
In essence, my assumptions are that an age 62 payment funds an investment account until age 70. At age 70, you stop funding the account, but don't draw from it either. You start to spend or otherwise use the age 62 amount (as opposed to investing it). The value of the total payments you receive combined with the investment appreciation seems to SUGGEST to me, that someone is better off filing at 62 and investing the money until 70. As opposed to waiting to 70 to file.
I agree there are assumptions. And assumptions change things. If I assume like in your post to start drawing the account down, then yes, I see how the individual will have less money by filing early. But allowing the account to grow and living off the lesser amount forever, I think might be valid.
One could argue that one could wait until 70, file, get the larger amount, but invest the portion over the 62 amount and that would be the same thing. Which it could. Except if one croaked at 75, their survivor would not get $300,000+ that had already been set aside and accrued. Although they would theoretically get a higher monthly amount as a survivor benefit.
I think alot of this depends on how desperate the individual relies on their SSA to make it. Like I said in my paper, if you absolutely NEED to file at 62 to actually live on, then this whole exercise is pointless. You don't have the option to wait until 70. After all, pretty much everyone wants to have a roof over their head and be able to eat occasionally
But a lot of us don't need the benefit. If you don't NEED the money, is it better to take it and invest it, building up a quarter of a million dollar nest egg by 70, and then continuing to let it grow, but not feed it anymore?
