Let’s imagine a common example. Client A is born in 1955 and their full retirement benefit at age 66 and 2 months. The annual benefits offered are as follows:
Reduced benefits at age 62: $25,181
Full retirement benefits at age 66: $33, 933
Delayed benefits at age 70: $44,792
For the sake of these illustrations we are going to discount the annual inflation increases on the SS payments because they would be applied at the same rate linked to the consumer price index regardless of what age you opted to begin collecting your benefit.
Client A’s benefit of $25,181 between the age of 62 until 70 is an aggregate income of $201,448 over the 8-year period. If client A does not receive this annual benefit because they waited until age 70, then we might presume that they needed to spend down the $201,448 from another source such as a 401k, IRA, savings or another investment account in order to meet their income needs. So how much is the time value of money on the $201,448 spent down to replace the SS benefit that was not collected because Client A waited until age 70 for the enhanced benefit?