What if you could tell a client that they can retire early and still get their full retirement benefits? Well, in fact, you can. “It’s not a new concept, but a lot of people don’t know that you can do it,” notes Pam Villarreal, senior policy analyst at the National Center for Policy Analysis (NCPA). “It’s not something that’s advertised.”
The current Social Security system allows individuals to claim reduced, early retirement benefits beginning at age 62. Individuals who wait until their full retirement age to collect receive about 30% more in monthly benefits. If they wait until age 70 to collect, their benefits will be about 60% larger than at age 62. So what should you suggest your clients do? Laurence Kotlikoff, senior fellow with NCPA and a professor of economics at Boston University, recently released a study with NCPA outlining this very question.
According to Kotlikoff, assuming a normal life expectancy and using the interest rate on government bonds, the actuarial present value of lifetime benefits are the same for those taking early retirement as for those waiting to take benefits at a later age. Of course, if one’s life expectancy is not normal–due to illness or bad luck or particularly good genes or good luck–one retirement age will look more attractive than another. Kotlikoff suggests going for the best of both worlds: retire at age 62, then pay back and reapply for Social Security benefits at age 70 if you come to regret your earlier decision.
“He ran a simulation with sample household couples,” explains Villarreal. Kotlikoff uses the scenario of Peter and Kate, both of whom are now 70, to demonstrate. The couple claimed their Social Security benefits at age 62 and now they each receive a reduced benefit of $13,250 annually (in 2008 dollars). If they had waited until their normal retirement age (65) to collect benefits, Peter and Kate would each receive $18,928 a year. If they waited until age 70 (this year) to apply, their benefit in 2008 would have been $20,693, thanks to the delayed benefit credit.