The Break-even Argument: Pros and Cons

Sep 13, 2019 / Amanda Chase, Horsesmouth Assistant Editor

The Squared Away Blog, a production of the Center for Retirement Research at Boston college, recently published a blog post about the merits of delaying Social Security to improve one's retirement outlook. It sparked tons of comments both pro and con. Click here to read the orginal article and comments, and here to read the response article (and more comments).

In the example in the article, a 65-year-old who is slated to receive $12,000 a year from Social Security could, by waiting until 66 to sign up for benefits, get $12,860 a year instead. By comparison, it would cost quite a bit more—about $13,500—to buy an equivalent, inflation-adjusted annuity in the private insurance market that pays that additional $860 a year. The strategy of delaying Social Security “is the best deal in town,” said a retirement expert quoted in the article.

But readers disagree. Adam Smith makes what is known as the “break-even” argument, which is behind a lot of people’s decisions about when to start collecting their Social Security. He wrote, “It will take 14 years to make that ($12,000) up. Sorry but I’ll take the $12k when I’m in my early 60s and can actually enjoy it.“

Other readers point out that the decision isn’t a simple win-loss calculation. The benefit of getting a few extra dollars in each Social Security check—between 7 and 8 percent for each year they delay—is that it would help retirees pay their bills month after month. This is a critical consideration for people who won’t have enough income from Social Security and savings to maintain their current standard of living after they stop working—and 44 percent of workers between 50 and 59 are at risk of falling short of that goal.

It’s an interesting read to see what might be going on in clients’ minds as you try to convince them to delay claiming Social Security benefits.


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