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  • Retirement

Tapping Into Social Security

A Framework for Timing Your Benefits

September 15, 2011
Deciding When to Tap Into Social Security

Some people are fortunate enough to have the option of tapping into their Social Security benefits later rather than sooner. But determining when to start receiving these benefits can present a critical—and often frustrating—dilemma. Should you wait and receive higher annual benefits, or would you be better off receiving smaller payouts over a longer period?

You’re facing an equation with two variables: How long will you live, and how much of your lifetime spending will your existing assets cover? Most of the advice we’ve found on this topic is either qualitative but lacks a robust methodology to support the conclusions, or quantitative but based heavily on assumptions about fixed rates of return.

We approach the problem differently: We address longevity and spending needs at the same time. First, we estimate a client’s “core capital”SM: the amount of money a person needs today to cover inflation-adjusted spending for the rest of his or her life.

Taking Benefits Later Means Bigger Annual Payouts
Annual Social Security Benefits*

*As of October 2010. Assumes that the individual has paid the maximum amount into Social Security since age 22 before beginning to receive benefits. Also assumes no earned-income offset (a reduction of $1 for every $2 earned above $14,160 in 2011) if benefits begin at age 62.
Source: Social Security Administration and AllianceBernstein

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