If advantages are claimed at age 62 and invested until age 70, the early beneficiary can construct a major pool of capital before the late beneficiary receives advantages.
Using illustrative assumptions:
- Maximum profit at age 62: $3,000 per 30 days.
- After-tax profit, assuming roughly 68.5% is withheld after federal taxes (37%*0.85): roughly $2,055 per 30 days.
- Investment return after tax: roughly 3.15% every year, which is roughly 5% before tax for high-end taxable investors.
- Monthly compounding.
Under these assumptions, the cumulative value of invested advantages at age 70 is roughly $220,000. In contrast, the one that defers eligibility until age 70 won’t have gathered Social Security advantages during that period. Importantly, the $220,000 represents liquid, investable capital, not a pension equivalent, and due to this fact represents the initial good thing about the early drawdown strategy.
Even if the after-tax investment return is reduced to half the illustrative assumption, the overall value at age 70 stays about $210,000. At twice the assumed rate of return, the cumulative invested profit increases to roughly $255,000. In the very long run, investment returns are more necessary, however the payoff profile is asymmetrical: higher returns have a greater impact on outcomes than lower returns.
