Investing the Social Security Income After Retirement

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.  I am not sure if this is a viable option but what if those retirees, who do not need the extra income from Social Security at age 62, 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 benefit 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.


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Comments
  • krantcents December 12, 2011 at 2:43 pm

    One of the issues may be that it would be taxable if you did not need it. I presume that if you did not need it, it is because you have a lot of other income. More than likely, Social Security would be taxable!

  • Miss T @ Prairie EcoThrifter December 12, 2011 at 4:11 pm

    There will be some kind of social security plan available when I retire but it won’t be much which is why I am concentrating on saving others ways now. These savings are the only way I will be able to live in retirement.

  • My University Money December 12, 2011 at 11:19 pm

    I will definitely be taking my social security as early as possible (although, if we keep going down the current path, I might be lucky to receive anything at all!). I simply want the freedom that comes with passive income as soon as possible, even if I am sacrificing a small amount of long-term wealth.

  • cashflowmantra December 12, 2011 at 11:43 pm

    I am not planning on Social Security at all, hence my plan to use dividends and rental income for retirement. If I get some benefit from Social Security, then great! If not, I won’t miss it since I am not counting on it. Very interesting analysis that you have presented.

  • Paul @ The Frugal Toad December 13, 2011 at 1:08 am

    I plan on receiving about half of my expected benefit at age 62. Hopefully by then I will be generating enough income that I won’t need Social Security in addition to my pension and other retirement accounts.

  • The Jenny Pincher December 13, 2011 at 10:36 am

    I doubt there will be anything left in the social security pot when I retire!

  • Jonny December 14, 2011 at 1:15 am

    I have invested money on some live insurance policies this year, let see what I’ll get on my older days. Your chart shows some good returns..

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