Question

Joe Speed is retiring this year at his Full Retirement Age (FRA) for receiving Social Security....

  1. Joe Speed is retiring this year at his Full Retirement Age (FRA) for receiving Social Security. Joe can begin to collect $30,000 per year this year. However, he read that he can wait for up to 4 years to begin receiving payments and his payment would increase by 8% a year ($2,400) for each of the next 4 years. With interest rates being so low, he thinks this is a great way to receive an 8% return on investment.

If he does wait, what is his expected return on investment, and what are the pros and cons of waiting or starting now?


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Answer #1

When the amount of 30000 grows 8 % each year, at the end of 4 years the amount is 145998. The total return on this investment is 36%.

The present value of this amount would be 107312.9.

Had he received 30000 each year for the next 4 years without any growth, the amount received each year would be 30000 *4 = 120000. If we discount this at 8 %, the amount will be 88203.58.

So if Joe waits he earns around 20000 $ more than what he would have earned had he received 30,000 per year for the next 4 years.

Please find below the excel snapshots of this comparision.

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