socialsecurity

When should I file for Social Security Benefits?

This exercise is to determine the most effective time to file for my Social Security benefits.

The current plan is to have our last debt, our house, paid off one month after I turn 61 and retire at 63. We are sending the mortgage company enough over our minimum payment to make this happen.

My wife is 8 years younger than me and we could live comfortably on her salary, since all of our debts will be paid off, so I can save 100% of my salary for those 2 years.

Now, the question is, should I file for SS benefits at 63 or wait until I turn 67? Retire at 63 and take my benefits right away or defer the benefit until I turn 67?

The first step is to get the estimated monthly SS payments.

To get the dollars and cents answer you can run multiple future scenarios through Social Security Administrations calculator at http://www.ssa.gov/retire/estimator.html.

If I elect to receive benefits at age 63: $1,427 per month.

If I elect to receive benefits at age 67: $1,946 per month.

$1,427 X 12 = $17,124 X 4 = $68,496

So I would collect $68,496 between the age of 63 and 67 if I elect to receive the benefit at age 63. Let’s say I live to be 87 (another 20 years after turning 67).

$1,427 X 12 = $17,124 X 20 = $342,480 + $68,946 = $410,976

So I’ll have received a lifetime benefit of $410,976 if I live to 87 and started my benefit at 63.

If I wait to 67:

$1,946 X 12 = $23,352 x 20 = $467,040

Comparing the two scenarios I would receive $56,064 more money by waiting to 67 to receive the benefit ($467,040 – $410,976 = $56,064).

But, my situation is unique in the fact that I will not need Social Security benefits to live on since my wife is 8 years younger than me, in good health, and has a good paying job. So, what if I invest every penny I receive between the age of 63 and 67? Remember, I’d have received $68,946 in benefits between 63 and 67.

First I would make the maximum contribution to my Traditional IRA then put the rest into my Roth IRA. I would then buy 5 or 6 Dividend Champions, companies that have raised their dividends every year for at least 25 years. Companies like At&T (T), HCP (HCP), Chevron (CVX), Nucor (NUE), Con Edison (ED), and Verizon (VZ).

When you add the yield of these six companies then divide it by six you get around an overall 5% yield so lets make this easy and just use one company for our exercise; Verizon. Currently Verizon sells for $45.13 per share and pays a quarterly dividend of $0.57 giving a yield of 5.03%.

If I take all of the $68,496 I receive between 63 and 67 and just buy Verizon stock I would end up with approximately 1,518 shares ($68,496 / $45.13). Approximately! because I would be buying shares over a 4 year stretch, sometimes the price of the stock is high, sometimes low, plus quarterly dividends are reinvested.

Let’s go with 1,518 shares at the current divided payout. 1,518 X 0.57 = $865 X 4 =  $3,461 / 12 = $288 per month.

I have about 9 years to get to age 63 so no doubt the stock price and dividend payment will be different but it will still remain relative. Meaning these companies will give a 5% overall yield 10 years from now just like they give a 5% yield today.

So, If I take the $288 extra income and add it to the age 63 benefit of $1,427 I get $1,715 per month. I like this much more than waiting until 67 to file. Why? Because I’m very close to the age 67 benefit and I have a $68,496 asset.

What if I keep reinvesting the dividends into the $68,496 portfolio after I turn 67? After all, I won’t really need the dividend income the portfolio generates to live on. As in our example using Verizon, the 1,518 shares generates $3,461 per year. This will buy 77 more shares giving a $176 increase in dividends the next year. In 5 years you would expect about another extra $1,000 per year in dividend income. After 5 years, generating $4,461 per year, you could buy 100 more shares each year, paying about $230 more per year. After the second 5 year period you would expect about another extra $1,500 per year in dividend income for a new total of about $5,461 per year, after 10 years.

Conclusion: In my situation it seems to make sense to take my benefit at 63 even though I can wait til 67 and receive a larger monthly income. By saving 100% of the income from 63 to 67 and investing in solid dividend paying companies I generate a substantial hard asset that will continue to grow over time. By reinvesting all dividends into more shares I estimate the $68,496 portfolio could grow to $110,000.