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Thinking About Social Security & “Opportunity Cost” 

September 13, 2024

Because divorce is its own course in financial planning, we try to stay abreast of smart ways to approach retirement. As everyone should know, social security comes in three flavors; 

Early retirement at age 62 for which the maximum  benefit is $2,710 a month 

Normal retirement which is about age 67 depending on your birthdate. That’s $3,822 a month 

Deferred retirement where you don’t apply to collect until you reach 70: that’s $4,873 a month 

Until I approached retirement age, I just assumed I would defer as long as possible. After all, even a lawyer can figure out that the benefit at 70 is almost twice what it is if you apply at 62 and I really did not need the lesser amounts to get by. And I had no “conditions” which might suggest an early “check out” from life’s motel. 

But as I got to age 66.5 (the normal retirement age for people born in 1955) I recalled the college lecture of my econ professor, Robert Dunn concerning the “opportunity cost” of not doing something you are otherwise eligible to do. Yes, if I put off claiming SSI until age 70 I would get an additional $1,051 a month in payments “for life.” But to get that I had to live to 70 (a reasonable expectation) and forego 42 months of $3,822. That’s $160,524. It would take me almost 13 years of the higher payments to recoup the money I left on the table by not claiming until age 70. And, while part of my $160,524 would be subject to income tax I would also have that money to invest in what was, in 2021 a strong stock market. In March 2021 the S&P500 was about 4,000. Today it is 5,500. That’s  a 35% return or about 1% a month. Now, no one knows that will transpire between now and September 2025 when I will (hopefully) attain 70 but so far I am liking the first $150,000 I have collected (39 months of $3,822). Had I not collected it, I would have had to draw assets from my retirement plans during a period when they were yielding substantial returns.  

The point of this is no more than to suggest that this is a decision that merits consideration where the simple answer (defer for higher payments) may not be the “best” answer. I hasten to add that this is also a decision where a financial planner familiar with the intricacies of when and how to claim social security can be an investment which reaps handsome returns.