There is this massive argument and analysis on when the appropriate time is to take Social Security. 62 is the earliest age when you can start to take Social Security and if you look on the Internet and on YouTube you will see a lot of discussion on whether this is the appropriate time to take Social Security versus the full withdrawal age of 70.
During my working years, I just saved and socked away money into my 401k and didn’t think twice about it. This was before the time of the internet and knowing that if you used the theory of compounding that you would have a massive amount left for you in retirement that you could use to fund your years of peace, quiet and, hopefully, tranquility.
Well, one day my Fidelity advisor called me and said “Mr. Lee, I want to talk to you about your future and how I can help you with your retirement goals.” In that conversation, I learned that I was actually going to get Social Security. How about that? It didn’t occur to me that I would actually get any because I thought the reason that I was saving into a 401k was so I didn’t have to take SS. I know, ignorance. Well, since I have paid into the system, I’m taking that money and it turns out that this is a nice sweetener on top of the amount in my 401k’s.
When you have a healthy retirement pool and with the addition of Social Security you have more options available to you than if you didn’t. At age 62, you only get about 70 – 75% of your entire Social Security benefit. If you wait until age 70, you get about 132% and a COLA adjustment. On the surface, this seems like a better deal, right?!
But there is a very simple, seminal microeconomic principal called Opportunity Cost. The Opportunity cost is the decision point, theoretically, of an alternative in an expected return calculation that if you didn’t take that path, you could be missing out on a possible alternative return that may be better.
So, if you wait until 70 to get that juicy 132%, a couple of things should be considered.
- You could die before ever collecting Social Security and the House wins!
- By the way, I know first hand that this is a thing. My mother’s friend passed away because she wanted that max amount only to die at 64 and never collecting at all.
- You could be missing out on a better return in the Stock Market or Crypto that would replace the loss, lower the breakeven point and negate the difference of taking it at 62.
So, if you don’t need the money and your living expenses are low enough and you have some assets whereby you don’t need to touch your retirement assets, then you would see that your Roth’s and IRAs can continue to grow, compound without ever being touched.
This isn’t rocket science. If you leave your money in a fund, chances are it’s going to increase in value and if you reinvest the dividends it’s going to increase even more. So, in order to illustrate this I wanted to test it against a simulated person starting to take withdrawals in 2005 whereas the other guy takes it at 2013 and therefore has to fully self fund it by himself.
Here is an analysis of just that with the S&P 500 where I measured it against the 2008 Credit Crisis to simulate a bad sequence of returns.
Assume you need $7,000 per month. If you get Social Security of $3,000, that means you only need $4,000. So, let’s see if we introduce inflation and start at an assumed year where you are taking it at 62, in this case 2005 to 2013 which would be age 70.
I also wanted to see what would happen with inflation so here is what we inputted into our simulator.
📉 Inflation Overview (2005–2013)
The average annual inflation rate over this period was approximately 2.55%, resulting in a cumulative inflation of about 23.5%. That means $1 in 2005 had the same purchasing power as about $1.24 in 2013.
The results are as follows:
💼 Portfolio Setup
| Parameter | Portfolio A | Portfolio B |
|---|---|---|
| Initial Investment | $500,000 | $500,000 |
| Monthly Withdrawal | $4,000 | $7,000 |
| Annual Withdrawal | $48,000 | $84,000 |
| Timeframe | 2005–2013 (9 years) | 2005–2013 (9 years) |
| Total Withdrawals | $432,000 | $756,000 |
📉 Inflation Adjustment
- Cumulative inflation (2005–2013): ~23.5%
- Real value of $1 in 2005: ~$1.24 in 2013
- All portfolio values below are adjusted for inflation.
📊 S&P 500 Performance (2005–2013)
The S&P 500 had a volatile ride, including the 2008 crash and strong rebounds in 2009 and 2013.
📈 Inflation-Adjusted Portfolio Results
Portfolio A: $4,000/month withdrawal
- Total withdrawn: $432,000
- Final nominal value: ~$310,000
- Inflation-adjusted final value: ~$250,000
- Real CAGR: ~–6.1%
- Outcome: Portfolio survived but was significantly depleted.
Portfolio B: $7,000/month withdrawal
- Total withdrawn: $756,000
- Final nominal value: ~$0 (portfolio likely depleted by 2012)
- Inflation-adjusted final value: ~$0
- Real CAGR: N/A (portfolio exhausted)
- Outcome: Portfolio did not survive the full period.
🧠 Insights
Inflation further eroded purchasing power, making fixed withdrawals more damaging
Monthly withdrawals of $7,000 were unsustainable over this period, especially with the 2008 downturn.
Even $4,000/month withdrawals consumed most of the portfolio, despite strong market recovery.
So, as you can see, in one of the worst downturns in my history, it’s best to take that Social Security early, use the extra money in your portfolio to grow tax free and then either keep on letting it go or take it out in later years.
My name is Vincent and I blog about Retirement and how to setup your freedom framework. Check out my YT channel @ Vincent Plans Freedom.