Retirement Math: Take the Money and Run

In 1983, Allan Greenspan headed a commission to "reform" Social Security. One of the adopted recommendations was to increase the "full retirement age."

"Full retirement age" means an unreduced maximum benefit based on the retiree's annual earnings over time. The Social Security Administration provides a chart showing full retirement age for different birthdays.

Seeking fast savings, the "reformers" bunched a heap of people into a full retirement age 66 category -- persons born from 1943 to 1954. Retirees born those years would receive the same percentage retirement reduction at age 62.

Before the 1983 change in retirement age, a person taking retirement benefits at age 62 would sustain a maximum benefit reduction of 20%. For people born in 1955 or later, the full retirement age is raised two months each year, making the reduction various. Future retirees, persons born in 1960 or later, could sustain a 30 percent reduction in benefits.

Owing to account deficits and high expenditures, additional retirement benefit cuts are being discussed. While "boomers" and others born later sustain reduced benefits as a result of the 1983 amendments, younger people would be most deeply impacted by another amendment to retirement age.

Health care statisticians cite increased life expectancy. That's an undeniable fact, but it's also a generalization. A certain number of people will never attain full retirement age, whether it is 65 or 67 or 107. The morbid undercurrent of actuarial tables is a form of bureaucratic hedging. Save Social Security, die young, preferably while working.

U.S. unemployment levels hover around 9.5 percent, and real unemployment is higher. Young people today find it hard to break into the job market, and tend to earn less when they do.

Unemployment and earnings decline mean less contribution to government budgets. Having thousands of young unemployed master's degree or PhDs waiting tables may enhance your dining experience , but it's another sign of looming Third World status.

For retirement age people, the "golden years" have become the "retirement trap." Another increase in retirement age could be counterproductive.

It's not only out of concern for the plight of new workers that people might consider retiring early. It's also sound reasoning. To determine what's best for you, obtain an SSA benefit estimate of minimum and maximum retirement benefits.

Suppose that the difference between maximum and minimum were $450 per month in a future retirement benefit which ranges from a high of $1500 per month (at age 67) to a low of $1050 per month (at age 62). By waiting until age 67 to take retirement benefits, the person would essentially be forfeiting $1050 per month for 48 months-or $50,400.

Divide $50,400 by $450 to get the number of months until the break-even point is reached. That's 112 months, in this case, or 9.33 years. You might live 9.33 years beyond age 62, at which point you will start to gain a monetary advantage from waiting until age 67. But just think what you could do in the meantime with an extra $50,400!

Sources:

http://finance.yahoo.com/news/Ruckus-over-raising-the-cnnm-1220704007.html?x=0&.v=3

http://www.ssa.gov/history/reports/gspan.html

http://www.bls.gov/news.release/pdf/laus.pdf

https://secure.ssa.gov/apps6z/isss/main.html

Editor's Note: This is 499 word version. I have also written a 600 word version. Not certain what length was requested.