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Reaching the break-even point
Buy an annuity or start all over?

Buy an annuity or start all over?

Last reviewed: December 2009

We analyzed whether it makes more sense for a 62-year-old single male to start collecting his benefits and invest them or allow the benefit amount to build and take payments at age 70. His monthly payment at age 62 is $1,248; at 70, it would be $2,070, an increase of $822 a month. But if he saved the money for the eight years and invested it for a 2 percent return over the inflation rate, then took the total amount and purchased an immediate annuity, he still would not generate $822 a month in income. An alternative is to pay back the total amount of benefits and start collecting again at 70.

Monthly benefit taken at age 62 $1,248
Total benefits received after 8 years 119,808
Hypothetical after-tax return on investment of benefits 6,224
Total income $126,032
ONE OPTION
Purchase inflation-adjusted immediate annuity $126,032
Would pay (monthly) 755
A BETTER APPROACH
Repay Social Security $119,808
Start new, higher monthly benefit based on age 70 2,070
Monthly increase
(Plus the $6,224 already earned from savings) 		822
Sources: Social Security Administration, Vanguard.

This article appeared in Consumer Reports Money Adviser.

Posted: November 2009—Consumer Reports Money Adviser issue: December 2009