Previously, I had discussed about whether we gain any benefit from Social Security income after retirement just by waiting to start withdrawing. We learned that there is an advantage of waiting until age 70 when compared to starting to withdraw from Social Security benefit at age 62 or 66 only if you end up living past age 80. Recently, I started to think about what other options are there for the retirees when it comes to Social Security benefit. One of the options is investing Social Security income in ROTH IRA. People tend not to think about investing during retirement, however, for those retirees who do not need the extra income from Social Security at age 62, they can start collecting Social Security benefit early and start investing 100% instead of waiting to collect until age 70.
In my previous post, Do We Gain Big Benefit With Social Security From Waiting?, I had stated that if you start collecting Social Security income at age 62 of $1,500 per month, you would have collected total of $414,000 by age 85. Similarly, if you wait until age 70 to start collecting Social Security benefit of $2,640 per month, then the total collection by age 85 becomes $475,200, an increase of $61,200 just by waiting. However, if you start investing your annual Social Security income at age 62 at annual return rate of 6%, what would be your total saved Social Security income by age 70 and 85?
By age 70, your total saving accumulates to $160,154. But, starting at this age, this total saved amount needs to get subtracted by $1,140/month (or $13,680/year), which is the amount required to match monthly payment of $2,640 if you were to start the Social Security benefit at age 70. As you can see above, the total Social Security you saved drops to $46,299 by the end of age 84. This amount of $46,299 is your extra income that you generated at age 85 by collecting Social Security benefit early at age 62 AND by investing annually at a return rate of 6%. If you increase the return rate to 8%, then your extra income becomes $149,086.
Keep in mind this is hypothetical as it could be challenging to consistently maintain a 6% rate of return during your retirement years. For those who are savvy investors, this option may work to your advantage utilizing the early Social Security benefit for investment. However, majority of us are not experts when it comes to investing. Therefore, if you do not need the extra Social Security benefit at age 62, then the better option may be waiting until age 66 or age 70. Remember, it’s always smart to invest early for your future. Don’t delay.