In some respects, the math is simple: Social Security calculates your benefit so that, whether you start collecting early or late, you will – at least in theory, based on life expectancy – receive about the same total payout over your lifetime. (The Social Security Administration itself can help walk you through possible scenarios with its “Retirement Planner.”)
Lemons, for his part, looks at three basic options: collecting benefits at age 62 (the earliest age possible for most individuals); full retirement age (which he pegs at 66); and age 70. (You can maximize your monthly check by waiting until age 70 to claim benefits, but you won’t gain anything by delaying beyond that point.) These options, moreover, don’t occur in a vacuum, either in real life or Lemons’s research—he factors in variables including inflation rates, return on investment and marginal tax rates.
His findings underscore the idea that collecting earlier, and getting a smaller paycheck, puts more strain on your other sources of retirement income. For example: For an individual worker who isn’t affected by Social Security’s “earnings test” (under which benefits are reduced above certain income levels), returns on investments “must generally exceed the rate of inflation by 5% or more to justify taking benefits at age 62 rather than at full retirement age.” For some, that could be a high bar to clear.
-Retirement Planning | Retirement Strategies