The break-even date is the month the total present value of household benefits received from the maximized strategy ultimately equals or exceeds the total present value of household benefits received from the what-if scenario (learn more about present values).
While it is tempting to compare your household’s lifetime expectancy with the break-even date when deciding which Social Security filing strategy to follow, economics tells us otherwise.
Social Security provides longevity insurance — insurance against living not to one's life expectancy, but far beyond. We can't count on dying on time — at our average life expectancies. So, we need to plan financially for the possibility of living well beyond that time. Basing Social Security filing choices on life expectancy, or any other age short of your possible maximum age, is playing the odds. But we only have one life to live, not thousands. We can't pool risk as life insurance companies do. We will die only once and it may well be at 100 or whatever is our maximum age of life.
So, if economics tells us to focus on the worst-case financial scenario — living to our maximum age of life — why do we show the break-even date?
Because planning based on maximum age can be a bitter pill to swallow, especially if it means filing later in life when you could use the extra money now. In many cases, you’ll reach the break-even date for your maximized strategy before you reach your life expectancy. This can make that pill far easier to swallow.
To recap: Economics tells us that maximum lifetime benefits based on maximum age of life is the main factor to consider when deciding when to file for Social Security. But knowing the break-even date can often help make that decision easier.