Question

Mary is about to turn 62 and she is in dillema whether to take reduced social security benefits at 62 or wait till 65 to get full benefits. She would be entitled to get $18,750 annually at full retirement age of 65, while she would get 77.5% of this amount if she decides to take social security at 62. Which option she should select if she can earn 8% return and her life expectancy is 88 years?

		She should wait till 65 since present value of benefits is $173,329 as against $147,080 at 62
		She should start taking at 62 since present value of benefits is $157,082 as against $154,366 at 65
		She should start taking at 62 since present value of benefits is $157,082 as against $152,589 at 65
		She should wait till 65 since present value of benefits is $194,457 as against $154,366 at 62

Answer 1

Particulars	At 62	At 65
Annual benefit	$               14,531	$            18,750
× PV annuity factor	10.80998	10.37106
Present value at that age	$             157,082	$          194,457
× PV of $1 factor		0.79383
Present value today	$       157,082.49	$    154,366.52

Correct option is:

She should start taking at 62 since present value of benefits is $157,082 as against $154,366 at 65

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