Timing Social Security: How Life Expectancy Changes Things


Today, we’re going to revisit our old friends, Pilot Pete and Chef Steve. In a prior blog post, we examined how much of a difference timing Social Security could have on their retirement plans. However, in that post, we assumed they lived well into their 90s. You may have questioned those assumptions – after all, they’re much higher than the average life expectancy in general.

There are a few reasons to plan for a higher life expectancy when it comes to creating your financial plan, but I’ll cover those in a future video. However, I was curious about how planning for the average life expectancy would affect Pilot Pete and Chef Steve. Will the timing of their Social Security make any difference now? Who’ll come out better? Let’s find out.


For simplicity and consistency, we’ll continue to use the same assumptions we’ve made in prior blog posts in all our calculations. Inflation will be 3% and our expected portfolio returns are 7%. At some point, we may revisit this case and examine how inflation impacts the results. For now, these numbers are close enough to long-term historical averages for our purposes.

For income, we’ll assume they make $90,000 per year. To estimate their Social Security, we’ll simply input Pete’s and Steve’s income into the Social Security online quick calculator to arrive at a monthly benefit. In this case, their benefits at Full Retirement Age would be $2,304 per month. We’ll also assume their stay-at-home spouses are eligible for spousal benefits.

Of course, Social Security benefits will increase annually with a cost-of-living adjustment. For simplicity, we will assume that Social Security payments increase at the rate of inflation as well.

For both Pete and Steve, we’ll assume they plan to spend $6,000 per month in retirement.

Retirement Savings

To see how the differences in timing Social Security change things for Pete and Steve, we’ll also need to make some assumptions about what they’ve saved up to this point. Let’s assume they both have the following saved:

Cash Accounts: $ 50,000
Stocks & Mutual Funds: $ 250,000
Retirement Accounts: $ 700,000
Total Investments: $ 1,000,000

Apply Early vs. Delay Until 70 Assumptions

Pilot Pete and Chef Steve each plan to retire next year when they turn 62. There’s only one difference between their retirement plans: Pilot Pete will immediately apply for Social Security when he retires at age 62, while Chef Steve plans to wait until age 70.

Life Expectancy

According to the Organization for Economic Co-operation and Development (OECD), U.S. life expectancy at birth is 76.1 years for men and 81.1 years for women. So, for our analysis, we’ll simply use these numbers for Pilot Pete and Chef Steve and their spouses.

Again, these numbers may be low from a financial planning perspective, but these examples can illustrate how timing Social Security can impact their chances of success.

Retirement Projections: Apply at 62

With retirement living expenses of $6,000 per month, both Pete and Steve have very high probabilities of retirement success. For Pilot Pete, we find that he now has a 98% chance of retirement success, according to our Monte Carlo analysis.

Because Pete applies early, he’ll only receive $1,613 per month at age 62. We’re also assuming that Pete’s wife Sally will apply for spousal benefits at age 62, reducing her benefits as well.

With these new life expectancy assumptions, they’ll receive a total of $521,856 in Social Security retirement payments over the course of their lifetimes. This total is in today’s dollars to make an easier comparison.

When we compare these numbers to our original analysis, we find that Pete and Sally receive $395,366 less than they would if they lived until ages 92 and 94, respectively. Living 16 years longer lowers their chances of success from 98% to 78%.

So, based on our new life expectancies, Pilot Pete’s retirement is in fantastic shape. But how does he compare to Chef Steve? Steve will be applying eight years after Pete. Until then, he’ll have to fund all his retirement expenses from his investments. Will it make a difference?

Retirement Projections: Apply at 70

As it turns out, timing does not make a big difference with our new life expectancy assumptions. By delaying Social Security until age 70, Chef Steve sees a 97% probability of retirement success, based on his Monte Carlo results. While a 97% chance of success is still excellent, it’s still lower than Pilot Pete’s chances.

At age 70, Steve will begin receiving $2,857 per month due to the benefit increases from delaying. Steve’s wife, Suzie, will also see her spousal benefits increase for delaying.

By delaying as long as possible, Steve and Suzie will receive a total of $508,170 in Social Security payments over their lives. In this case, Chef Steve and his wife will never reach the break-even point. They’ll never catch up to Pilot Pete and his wife, Sally, when it comes to Social Security benefits.

Retirement Projections: Apply at FRA

You may be wondering how our pilot and chef friends would fare if they applied at their Full Retirement Age of 67. Once again, this is the optimal age for them to apply. If they did, they’d see their Monte Carlo probability of retirement success jump to 99%. They would also receive the maximum total lifetime benefits of $552,960.

Timing Social Security – Longevity Hedge

Of course, our scenarios with Pilot Pete and Chef Steve are over-simplified. There are many details missing from the financial plans we’re using in this analysis. As I mentioned in the first blog post, life expectancy is one of the major factors in deciding on when to take Social Security. If you believe you’re healthy enough to make it to the break-even age, then the numbers begin shifting toward delaying.

Another comment I made in the prior blog post was that Social Security timing doesn’t move the needle much when clients already have a 90% or greater Monte Carlo probability of retirement success. This is a perfect example of where a strategy change only creates a marginal improvement.

Since delaying doesn’t create a significant benefit, an early application may be more appealing.

Choosing to take your Social Security benefits early also becomes a hedge against any potential cuts in benefits based upon the health of the Social Security system. In a future video, I’ll examine how the projected depletion of the Social Security trust would impact Pilot Pete and Chef Steve.

If you need help figuring out optimizing your Social Security benefits, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.

As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.

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