Social Security Q&A: What maxing out your Social Security benefits looks like in dollars

by Larry Kotlikoff

Source: Forbes

Social Security may be your largest or one of your largest assets.  How you manage it by deciding which benefits to collect and when can make an absolutely huge difference to your lifetime benefits.  And those with the highest past covered earnings have the most to gain from maximizing their Social Security.

I’ve been answering questions and writing columns about Social Security each week for the past two years on PBS NEWSHOUR’s website.  The editors at Forbes asked me to post a Q&A each day from those columns.  To see all my columns, please go to my software company’s site,, and click More Press below the WSJ quote.

Today’s Q&A is one I made up and examined with my company’s software.  How much, exactly, can a never married single person, Joe the Plumber, raise his lifetime benefits by waiting to collect.  Lifetime benefits here are calculated as the present value of all future benefits through Joe’s assumed maximum age of life of 100 and discounted back to the present using a 2 percent real (after inflation) rate of return.   Since Joe is not an insurance company, the discounting isn’t actuarial, i.e., the amount he will receive isn’t multiplied by the probability of his surviving to receive the payment.  The method of valuing Joe’s Social Security benefits is consistent with the literature in finance and economics on the proper way to price annuities.

Joe the Plumber: Never married and never happier

Joe is one of the happiest people I don’t know. (How can I? He’s imaginary.) From age 16, when he dropped out of high school, Joe’s been able to do what he loves – plumbing. You show Joe a drippy faucet and his day is made.

Joe’s now 62. He started as an apprentice back in 1968 earning $7,500 a year. Last year, when he called it quits (back problems), he was hauling in close to $70,000 thanks to lots of rich clients with radiant-heating leaks.

Joe never married. It’s just Joe and Francy – his lovely Tibetan Terrier. Joe’s been asking Francy when to take Social Security and she just smiles that Tibetan-Terrier-monk-smile that says, “Don’t ask me, I’m not a material girl.”

But after repeated pleading from Joe, she headed to her laptop, spent a few minutes, and said, “Listen, if you take your benefits immediately, we’re talking $472,626 in lifetime benefits. But if you wait till 70, it’s $605,474. That’s a big difference. Wait until 70.”

“How long,” Joe asks, “are you assuming I’m going to live?”

“Age 100 is your assumed maximum age of life.”

“I’m going to make it to 100?”

“If it could be, it would be. Ask Dr. Seuss. Those are his words. And since you might live to 100, you need to plan to live that long for the simple reason that you might.”

“But what if I only make it to 80?”

“You’re missing the point. You could die tomorrow. But right now, you’re alive and kicking, and we’re trying to figure out what your benefits are worth in all situations in which you may collect them – and then add all those values up. The sum is your total lifetime benefits.”

“Ok, but what if my maximum age of life is 80? What do I do then?”

“Give me a half second. Ok, in that case, you should take your benefits at 64, not 70. And your maximum lifetime benefits are no longer $605,474, but $278,029. That’s far lower because you’re saying for sure you won’t live beyond age 80. So we really need to think hard about your maximum age of life.

“My mother lived to 88, but my dad died at 52 – hot water heater explosion.”

“Times have changed. People are living forever. I think we should go with 100. By the middle of this century, we’re going to have over 600,000 centenarians – enough to fill up Boston. You could be one of them.”

“Alright, alright. Age 70 it is. You’re pretty smart for a dog.”