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The Financial and Tax Considerations of Social Security and Early Retirement

Stephen Kuselias, Stephen J. Perreault and Michael Shafer
The Journal of Wealth Management Winter 2021, 24 (3) 90-98; DOI: https://doi.org/10.3905/jwm.2021.1.154
Stephen Kuselias
is an assistant professor of accountancy at Providence College in Providence, RI
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Stephen J. Perreault
is an associate professor of accountancy at Providence College in Providence, RI
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Michael Shafer
is an associate professor of finance at Providence College in Providence, RI
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Abstract

Although individuals who delay the receipt of social security benefits are entitled to larger monthly payments, 57% of recipients elect to receive benefits early. This article compares the present value of social security benefits when taken early to the present value of benefits taken at the full or maximum retirement ages, taking into account factors such as average life expectancy and the time value of money. Furthermore, we expand on prior research by investigating how tax rates may affect these comparisons. Overall, our analyses suggest that taking social security early may be advantageous for many individuals.

Key Findings

  • ▪ Electing to receive social security benefits early may yield a higher expected present value stream of payments for those with a moderate risk profile.

  • ▪ Early election may be most beneficial for retirees with the majority of their savings in tax-free accounts.

  • ▪ However, the benefit of electing early appears to persist even for those with retirement portfolios subject to substantial taxation.

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The Journal of Wealth Management: 24 (3)
The Journal of Wealth Management
Vol. 24, Issue 3
Winter 2021
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The Financial and Tax Considerations of Social Security and Early Retirement
Stephen Kuselias, Stephen J. Perreault, Michael Shafer
The Journal of Wealth Management Oct 2021, 24 (3) 90-98; DOI: 10.3905/jwm.2021.1.154

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The Financial and Tax Considerations of Social Security and Early Retirement
Stephen Kuselias, Stephen J. Perreault, Michael Shafer
The Journal of Wealth Management Oct 2021, 24 (3) 90-98; DOI: 10.3905/jwm.2021.1.154
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  • Article
    • Abstract
    • BACKGROUND
    • THE ECONOMIC VALUE OF SOCIAL SECURITY IN EARLY RETIREMENT
    • THE TAX EFFECT ON EXPECTED BENEFITS
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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