You can pick from dozens of different ways to be paid and hundreds of different start dates, and each will produce a different salary. We offer some guidance, but we're short-handed. As such, deciding when and how to collect a paycheck is essentially up to you.To make the optimal decision, the Social Security recipient should have a financial model--probably a spreadsheet--that projects her cash flow over her expected remaining life before the addition of Social Security benefits. If she's married, the model should include the pre-SS income and expenses of her spouse.
"So…what would you like to do?"
The impact of various choices (for example, claiming reduced benefits at age 62 vs. the highest benefits at age 70, or selecting spousal benefits instead of benefits based on one's own earnings) should be added to the model cash flow. The incremental SS benefit each year, after tax, should then be discounted (the theoretically correct rate is open to question, but a reasonable starting point is whatever one expects the inflation rate to be) to calculate the net present value, and one should select the option that produces the maximum NPV.
Of course, not one person in a hundred attempts the above, even those (ahem) who have worked in financial analysis for decades.
Simple rules of thumb--like waiting to claim benefits if one can afford to--don't always produce the optimal result. True, benefit payments reach their highest point by deferring them until age 70, but the file-and-suspend strategy at age 65 (or whenever full retirement age is reached, depending on one's date of birth) may produce a higher net present value. That's the strategy that we eventually are likely to follow.
I thought there wouldn't be any, but unfortunately math is involved. © 2014 Stephen Yuen
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