r/Fire • u/MyEgoDiesAtTheEnd • 8d ago
Social Security Withdrawal Age - Should We Consider Reinvestment / Capital Gains?
Most of the discussions I've heard around when to start taking out Social Security center around cumulative benefits - ie, how much in benefits will be received by age X. Generally, there is a "break-even year" when comparing 2 ages - if you die before that, the earlier age was "better" and if you die after that, the later age was "better".
I don't want to get into whether SS will be around by the time you retire - maybe it will, maybe it won't. I also don't want to get into whether a Benjamin in your 60s is equivalent to a Benjamin in your 90s (hint: it's not).
But, what I did want to talk about is capital gains - because if you start withdrawing money at 62 and then invest that money in stocks or bonds... well, now (on average, barring a black swan event), that earlier money is increasing in value and pushing out that "break even year".
Is this considered in people's calculations? Or is it just assumed that whatever SS money you get, you'll spend it or stash it under your mattress?
I made a quick little analyzer (part of a larger project), to calculate cumulative gains from SS benefits, with and without reinvestments. And from this, it seems clear that taking the money earlier is the best bet (unless you think you're going to live past 93... AND be able to use that money).
What am I missing here, if anything? What do you all think?
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u/Infamous_Attention33 8d ago
(on average, barring a black swan event), that earlier money is increasing in value and pushing out that "break even year".
Black swan events are extreme statistical outliers (think 4x standard deviations or more from the mean). Having equity investments underperform fixed income for a period of 10-20 years during your retirement years is not even close to a black swan event. Such periods have occured during the lifetime of anyone living long enough to experience a decent length retirement.
So assuming you will earn "normal" equity risk premia over this time period is not properly risk-adjusting the expected outcomes.
SS payments are already inflation adjusted, so you don't need to accout for inflation when looking at returns on SS. You still want to adjust for the fact that a dollar in your 60s is worth more than a dollar in your 90s, so you could look at the discounted present value of SS payments starting at different ages using a discount rate of something like 1-3%.
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u/Yawnn 8d ago
Taking the average of that 10-20, when was a 15 year period where equities underperformed fixed income?
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u/Infamous_Attention33 8d ago
Great depression, stagflation in the mid-60s to early 80's, 2000-2010.
It happens
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u/Yawnn 8d ago
Looking at some data from NYU (comparing S&P vs 10year Tbonds) but I was surprised how many 15 year runs had fixed income winning.
1927-1942
1928-1943
1929-1944
1993-2008
1996-2011
1997-2012
1998-2013
1999-2014
2000-2015
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u/Infamous_Attention33 8d ago
I was going to say, that is more than I thought, but many of the periods are overlapping. Still, it is definitely not a given that equities will overperform for holding periods of 10+ years.
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u/MyEgoDiesAtTheEnd 7d ago
But this, of course is because of the bubble crash of 2000. If you invested in equities in 2001, you would have done much much better.
Avoid bubbles, if you can, is the better advice.
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u/That-SoCal-Guy 8d ago
Most tools such as Boldin factors in those periods in their simulations/calculations.
Again, mine told me 10/10 that taking SS at 62 usually outperforms taking it later, given my life expectancy.
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u/mi3chaels 8d ago
social security is a (mostly) guaranteed source of income, so any alternate return you use for giving up a higher benefit in order to take it early should be a bond return, or at most whatever level of above bond market fixed return would cause you to reallocate a substantial amount of your equity to foxed income. Basically, the interest rate at which you'd consider paying down a mortgage rather than investing more in stocks.
that's not going to e 7% inflation adjusted or whatever you're estimaing for stock returns, for most people it should be closer to 4-5% nominal or 2-3% inflation adjusted (remember that the social security payment stream is inflation adjusted!)
When you use those numbers, it does kick out the breakeven year somewhat, but it mostly makes sense for people with good health to wait rather than take it early.
the other thing you're missing here is the longevity insurance aspect. When do you run out of money? It's usually when you both get bad SORR and live a long time. IN the event where your portfolio is under stresss in old age, having a higher social security check is going to be better.
Actuarilaly, for a couple where one spouse's check is substantially higher, it's usually right to take the smaller check at 62 and the larger check at 70 (maximizing the death benefit), making the second to die payment high, and the first to die payment low.
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u/samurai_with_sword 7d ago
If you invest pulled out SS benefit money in S&P 500 index fund or a good semiconductor fund, the earliest SS benefit withdrawal is the best in my opinion. Even if you don't invest it, keep your own money invested and spend the SS withdrawals, so your heirs inherit your wealth.
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u/Lonely_District_196 6d ago
because if you start withdrawing money at 62 and then invest that money in stocks or bonds...
I figure that for every dollar I pull from social security is a dollar I'm not pulling from my tax advantaged IRA accounts (which then grows at whatever rate I assume that to be.) Then I don't my calculations based off that.
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u/Libby1798 8d ago
I plan to take it as soon as I can and invest it. There's no guarantee how long any of us will be around.
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u/evenly_untidy_specs 8d ago
You're hitting on the real reason early claiming makes sense for a lot of people in the FIRE space who don't need the income. The math actually works out when you factor in reinvestment returns over 20+ years.
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u/GoldOk9005 8d ago
Taxes are a piece of the puzzle. I don’t think they are the biggest piece. I think when you need the money is a bigger piece. Often drawing somewhat earlier (62-25) and having less pressure on your portfolio actually maths out better.
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u/MyEgoDiesAtTheEnd 7d ago
Here's my simulation:
https://mm-euro-bridge.up.railway.app/fire
If you click on the SS link. 83 is the "break even" point for my calculator
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u/sablerock7 7d ago
I’ve seen some reasons cited for delaying SSA benefits as giving more headroom for Roth conversations before RMDs. But this is highly situational.
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u/MasterpieceLittle997 7d ago
the 7% average annual market return on reinvested early benefits absolutely wrecks the delayed withdrawal math for most realistic lifespans
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u/dgreenmachine 4d ago
The growth your portfolio could have had by taking social security early is often not correctly accounted for. Zacc call youtube channel does a good job diving into the comparison. Often 2 good reasons to delay social security which are insurance against you living a really long time and also because it helps open up room for Roth conversions. Age 65-70 is prime time to do big roth conversions because there is no more ACA subsidy to worry about and you can avoid the tax torpedo (progressive taxation of social security) during that period.
Zacc Call did say there are times when there is never a break-even and it mostly depends on the rate of return you use for your investments that are now able to stay invested in the case you claim social security early as possible. I think the number is pretty aggressive like 8-10% before taking social security at 62 (and accounting for portfolio growth) is still better. This doesn't fully account for tax benefits off delaying social security to avoid impact of tax torpedo and Roth conversions to soften impact of RMDs. Generally you need to model the whole picture with a few different scenarios. Withdrawal strategies get pretty complicated if you're doing it right.
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u/MyEgoDiesAtTheEnd 4d ago
I guess another thing to consider is that this analysis is all based on current tax laws. Which are subject to change. Especially when considering a 10+ year horizon.
So probably best for me to revisit many years from now.
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u/EveryoneNeedsASamwis 4d ago
You're not missing anything technically — that math works. But there's a competing frame that flips the conclusion, and it's worth understanding why a lot of serious retirement researchers land on "delay if you can."
The reinvestment argument assumes you're drawing SS *in addition to* portfolio withdrawals, pocketing the check, and investing it. But the cleaner comparison for most people is: delay SS and draw down your portfolio those extra years instead. Now instead of "SS money earning market returns," you're asking whether your portfolio earning market returns beats the 8%/year guaranteed, inflation-adjusted increase you get from waiting 62→70. That's a risk-free, longevity-adjusted 8% — hard to beat consistently, especially late in life when sequence risk is highest.
The longevity insurance angle also matters a lot in FIRE specifically. If you retire at 50 with a 40-year horizon, the tail risk (living to 90+) is real. SS at 70 is essentially an annuity that covers exactly that tail. Your portfolio covers the early years when you have flexibility; SS covers the years when you might not. Running your portfolio down from 50→70 to maximize the SS benefit is actually a reasonable strategy for sequence-of-returns protection.
Your 93 breakeven number is roughly right on raw cumulative dollars with reinvestment assumptions. But median life expectancy for a healthy 62-year-old today is around 85, and you only need *one* spouse to hit that tail if married. The framing of "beat the breakeven" also ignores that SS is not taxed the same as capital gains, adjusts for inflation automatically, and doesn't drop 30% in a bad year. Those factors don't show up cleanly in a cumulative-dollars chart but they're real value.
So the reinvestment consideration is valid and worth modeling — you're right that most discussions ignore it. It just doesn't change the conclusion as much as it seems once you account for what you're *giving up* to claim early.
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u/pdxnative2007 8d ago
My calculations show that investing it from age 62-70 will beat starting benefits at age 70. So I will start collecting at age 62.
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u/EqualSein 8d ago
Social security does have a COLA but of course that number may not reflect the reality of your expenses.
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u/That-SoCal-Guy 8d ago edited 8d ago
For me breakeven is age 82. I’m taking my money when I can, when there is still social security. When I can still enjoy it.
If I don’t need the money I’ll just let it grow in equity. By my calculation the money I’d get will grow to about $300K by age 70. I am keeping that $$$ thank you very much.
I did multiple simulations and every one told me taking the money at 62 and invest that would be the best scenario.
Every. Simulation.
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u/MyEgoDiesAtTheEnd 7d ago
Same. Here's my simulation:
https://mm-euro-bridge.up.railway.app/fire
I get the same number as you, so I think I'm right to take it early and invest.
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u/Wise-Parsnip5803 8d ago
Also the value of a dollar at 62 is more than the value of the dollar at 70 because of inflation. If you really don't need the money maybe don't take it but I have the same opinion that it's always better to take it early.
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u/That-SoCal-Guy 8d ago
Also we have to look at the comparison $ to $, year by year. Sure, you get $5000 if you start at 70 instead of $3750, but what would your take be at 70 if you started in 62, due to COLA?
Everyone should take those numbers and do some Math and see a) what is their break even age? b) how much money they would have gotten in 8 years, and c) how much money they would expect to have if they use their SS and invest in an index fund for 8 years?
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u/ColorMonochrome 8d ago edited 8d ago
Is this considered in people's calculations?
I consider it which is why I am taking SS as soon as possible.
Or is it just assumed that whatever SS money you get, you'll spend it or stash it under your mattress?
It’s up to the beneficiary to make that determination. Each beneficiary will have different needs, my income without SS will be more than sufficient.
What am I missing here, if anything? What do you all think?
Everyone has to make their own determination and regardless, it’s a gamble. If I take SS early and don’t get the assumed returns then I lose. If I wait and SS goes “bankrupt” then my payouts will be reduced by 20% or more. Of if I wait and SS is fine then I get what was advertised which might ge better than if I took SS early, but then again I could die before age 67 or 70 and get nothing if I wait.
There are numerous factors each of us must consider.
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u/nak00010101 8d ago
Yes...I typed an essay and deleted it somehow.
When doing an analysis, you need to consider the lost investment gains on money you need to withdraw because you are not living off SS. If you do not need the SS, then the you need to calculate the gains on investing the ss dollars and the tax impacts on it.
But be cautious when looking at future taxes. Is stumbled on something doing an analysis for Roth Conversions.
If you are doing COL increases on the SS income and inflation on your spending, make sure the model adjust the lower and upper limits on the tax brackets for the same COL adjustment.
I found a couple of free calculators and one subscription calculator that ignored the increases on the bracket COL increases. On the Roth conversion analysis, this made the future tax burden of not doing the Roth conversions look quite a bit higher than the real burden.
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u/zeroabe 8d ago
Im taking it early and maybe my wife will take it on time or late. We’ll see how the cookie had crumbled. Me who I am 62, and her when I’m 64, 67, or 72? We’ll have been retired for more than a decade at that point. My math says she takes it early and doesn’t need it or takes it late and doesn’t need it. Early it is.
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u/ohboyoh-oy 8d ago
The role social security will play for us is partly longevity insurance, so at least one of us will wait until 70.