As I read these posts I wonder whether it is ever "advantageous" to take SS late if you are retired and withdrawing from your portfolio at 62. Certainly the SSA will pay you more if you wait to apply and then live long. But SS says that the average individual breaks even in payments over an actuarial lifespan. As I have understood the SSA portrayal - this is in actual inflation adjusted dollars paid, not through some arbitrary calculation of investing the difference.
We often argue here that ONLY IF the early SS applicant invests the SS payment can they make up the increase they would get at 70. But the average person would otherwise have to pull funds from their portfolio for expenses. They automatically save and invest the difference since early SS offsets the need for withdrawals. So those withdrawal savings (and gains at the average rate of the portfolio) are always generated.
That means the "average" individual who is retired and lives the average lifespan must, by definition, do better taking it early to the extent of the portfolio savings and gains for 8 years. It would take many years beyond average lifespan to tilt toward SS. It seems to me that this makes delayed SS an expensive annuity.
I'm not sure where you saw the SSA portrayal, but here are some numbers that seem relevant to me:
Real Inv Inc Rate = | 0.0% | 3.0% | 6.0% |
At 62 - Male | 19.72 | 14.42 | 11.18 |
At 62 - Female | 22.77 | 16.09 | 12.16 |
At 66 - Male | 21.08 | 14.23 | 10.12 |
At 66 - Female | 25.11 | 16.42 | 11.38 |
66/62 - Male | 1.07 | 0.99 | 0.90 |
66/62 - Female | 1.10 | 1.02 | 0.94 |
| | | |
The first two rows are the present value of $1 per year, payable at age 62 and then as long as you live. The next two rows are the pv of $0 for four years, followed by $1.33 payable annually for life. All four use the 2004 US Life Tables. The last two rows are the ratios.
In my mind, this is a reasonable approximation of taking SS at age 62 or deferring to age 66. Note that the "roughly equivalent" discount rate is 3%, and note that's a real (CPI adjusted) rate, so 3% means you're beating the CPI by 3%.
There's the obvious fact that mortality rates matter. It makes more sense for a woman to defer than a man, simply because on average women live longer.
But, almost anyone who is asking this question has a longer life expectancy than the US Life Tables. The reason is that those tables use everyone alive, even people who are on their death beds. People asking the question are not (knowingly) terminally ill, so they will, on average, live a little longer than the table.
So I'd say that on a pure dollar basis, the "roughly equivalent" statement takes into account reasonable investment returns.
But, IMO, the important question for lots of people isn't "How do I maximize the money I'll leave to my heirs?", which is what this table is calculating. It is "How do I minimize the chances of outliving my money?" The future scenarios where I outlive my money are those where investment returns are low and my life is long. Those are exactly the scenarios where SS shines.
OTOH, few people who post here have any real concern about outliving their money. Most of us retired with some sort of belt and suspenders plan, so the "maximize my estate" question is more relevant for most of us.