The math behind Social Security is well known. Benefits can be claimed as early as 62, but doing so permanently reduces monthly payments. Waiting until full retirement age increases the benefit, and delaying further raises it again until age 70. Over a long retirement, delaying can produce meaningfully higher lifetime income.That tradeoff is difficult to price intuitively. It is also one of the most consequential decisions retirees face, because it changes the structure of income, withdrawals, and risk at t ...

Core Insights - The article discusses the complexities of deciding when to claim Social Security benefits, emphasizing the importance of considering longevity risk and opportunity cost in retirement planning [3][4][6]. Summary by Sections Social Security Claiming Age - Individuals can start claiming Social Security benefits at age 62, with full retirement age (FRA) between 66 and 67, and can delay benefits until age 70 [5]. - Delaying benefits can increase monthly payments by up to 8% per year according to the Social Security Administration [4][5]. Breakeven Age Analysis - The breakeven age is the point at which cumulative benefits from delaying Social Security exceed those from claiming earlier. For someone eligible for $2,000 per month at FRA of 67, the breakeven age is around 78 years and eight months if claimed at 62 [1][8]. - If the individual waits until age 70, the breakeven age rises to approximately 80 years and five months [1]. Longevity and Risk - Estimating longevity is uncertain, with average life expectancy in the U.S. around 78.4 years, but individual outcomes can vary significantly [2]. - If an individual passes away before age 70, they may receive no benefits despite years of contributions [2][3]. Opportunity Cost Considerations - The analysis of delaying benefits often overlooks the time value of money and opportunity costs associated with accessing and investing earlier benefits [6][7]. - For example, if an individual retires at 62 but delays claiming until 67, they may need to withdraw from savings, forgoing potential investment returns [6][8]. Adjusted Breakeven Age - When factoring in opportunity cost, the breakeven age can extend significantly. For instance, with a 5% annual return on investments, the breakeven age could rise to approximately 88 years and eight months [8]. - If the expected return is 8% annually, the breakeven point may not be reached within a typical lifespan, suggesting that claiming benefits earlier while keeping retirement savings invested could yield better financial outcomes [9]. Financial Strategies - To mitigate opportunity costs, retirees may consider maintaining a significant emergency fund or utilizing a home equity line of credit (HELOC) to avoid early withdrawals from investments [10][12]. - A high-yield account can help grow emergency funds, offering competitive interest rates and easy access to cash [11]. Professional Financial Advice - Given the complexities and uncertainties in retirement planning, working with a qualified financial advisor can help individuals account for various factors such as inflation, healthcare costs, and spending needs [14][16]. - Companies like Vanguard offer personalized advisory services to assist in creating tailored retirement plans [15][16].