$188,000.00 is the amount of money that we would leave on the proverbial table if we waited until our retirement age of 67 to take Social Security.  By quickly calculating the difference in the amount we would receive, it would take 12 years for us to break even.

Waiting until 67 allows the benefit to ‘grow’ 8% each year, which financial advisors will tell you is a great rate.  (But you all know how I feel about financial advisors)  However, the 8%  incentive is only good if you live well beyond 74.  The operative word being ‘live’.  All of the social security benefit goes away when you die.  Since we don’t know when we are going to die, it remains the one thing that makes this decision a gamble either way.

I will have to make a similar decision on a pension that I expect to receive in five years.  Based on the numbers at this time, I can either take $600 a month for life, or a lump sum of $137,000.  If I live another 30 years, the monthly payment would be $216,000.00 in total pay outs but would end upon my death, whenever that may be.   However, if I take the lump sum, invest it conservatively (earning 4-5%) while taking $600 a month, after 30 years I would still have $64,000.00.  It can continue to grow and be given to my heirs even after I’m gone.

This seems very similar to the decision with Social Security.

If we never spent the monthly checks from social security from 62-67, the $188,000 could be invested (conservatively at 4-5%) until 67.  At 67, we would have

$216,000.00

Now let’s say I started taking the extra $1,200 a month I would have gotten if I waited until 67, from that investment still earning 4-5% a year.  I would be able to pull that money out for another 25 years.  If I die before the 25 years is up, that money can go to my heirs as well.

I’ve accounted for taxes and low investment yields.  It seems like a no brainer to me.  I should take the money the earliest it is offered.

Okay all you math nerds…am I missing something?