I receive about $1400 a month from civil service retirement. I am FERS. My wife receives about $4000 a month from civil service retirement. She is not eligible for Social Security ( Either for herself or mine as a survivor).
Most of the experts state that you should wait as long as you can before you start drawing on Social Security. They point out that the fund increases 6% per year up until full retirement age and then increases to 8% per year from that age until age 70. However, my situation is a little different. I don't need any of my Social Security monthly payments to meet monthly expenses. It is all available for immediate investment. The payouts that I can receive are as follows:
Now at age 62 $1,750 per month
At age 65 $2,000 per month
At age 66 and four months (full retirement age) $2,300 per month
At age 70, $3,000 per month
So to make the math fairly simple let's start with receiving my retirement funds from Social Security at age 65. Let's compare that to the amount I would receive at age 70. There is $1,000 difference so it appears on the surface to be a no-brainer. Wait until 70 if you can. But, is that true if those funds are available for immediate reinvestment?
Let's take $2,000 per month and see what the return would be after 60 months (five years in between 65 and 70) and see what our principal amount would be.
https://www.bankrate.com/calculators/retirement/investment-goal-calculator.aspx
At a 7% annual rate of return the taxable amount would be $135,000 by age 70. So now let's see who receives the blue ribbon in a race between $2,000 a month with $135,000 start and $3000 a month. So my calculation is going to take the $135,000 and figure the return on it over a ten-year period from age 70 to age 80. I'm then going to take the $3,000 a month and invest it over a ten-year period. We will continue to use the 7% return figure.
In the first scenario $135,000 invested over a ten-year period at 7% interest plus $2,000 a month would yield a return of $530,000.
In the second scenario we will take $3,000 a month and invest it for 10 years with a 7% rate of return. The return on this is $464,000.
So clearly if you have the funds to invest, the best method is to draw Social Security earlier rather than later. Also, one major benefit that cannot be overlooked is the amount of available funds for your decedents in the event of your early demise.
Some may have noticed that I have not taken tax consequences into the above formulas. Since I still have my 2018 income tax return on my computer let's do a final computation involving taxes. In this third scenario I would start drawing $1,750 at age 62.
This would add a total of $21,000 to my 2018 return and the increase in tax due is $3,000. This equals $250 tax withholding per month. (In my state there is no tax on Social Security benefits for someone in my tax bracket). Therefore the net amount of benefits would be $1,500 per month at age 63. So if I started receiving that in January of next year, I would receive that amount for seven years until age 70. At seven years the balance would be $150,000 at a 7% annual rate of return. So with an initial investment of $150,000 and $1,500 a month invested at a 7% rate of return for 10 years the total would equal $477,000.
So even utilizing this more stringent calculation, drawing Social Security earlier than later appears to be the better strategy. Any comments?
