Link to article - http://www.forbes.com/sites/advisor/201 ... -benefits/Currently, interest rates are at historically low levels and if you listen to the Federal Reserve, interest rates will remain low until at least 2015.
“Present value” means the value today of a future payment or stream of payments, discounted at some appropriate compound interest. A key component is the current and immediate projected rates of interest. If you were to receive $10 today and invest it, you would expect it to be worth more in five years. Conversely, your right to receive $10 in the future would be worth less than $10 in present value. For that reason, it is never too early to start saving and investing for retirement.
As the below table illustrates, when interest rates are low the present value of future income streams such as social security payments increases. This table shows the effect of different interest rates on the present value of the right to receive an annual $20,000 payment over a 20-year time period. Each of the rates indicated in the table, with the exception of 0%, reflect the actual annual interest rate at one time in the past of the 30-year U.S. Treasury bond.
The lower the interest rate, the higher the present value of those future payments. Today, that makes the present value of your future social security benefits a very valuable asset.
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Interest Present Rate Value 11% $159,267 8% $196,363 5% $249,244 3% $297,550 0% $400,000
I have highlighted how valuable, in present value terms, your social security benefits are. But like all human beings, now you probably are thinking “that’s interesting, but how can I get even more?” Of course when I say more, we always mean more net after tax income.
Some methods of increasing social security payments are delaying payments, having only one spouse elect payments while the other delays, and more. Also, avoiding distributions from tax generating accounts, such as other retirement plans, is another way to maximize your net after tax social security income. There are a variety of things that can be done to maximize the amount you receive in social security benefits.
If you are fortunate enough to be a participant in a defined benefit plan, the same logic applies. The present value of those future payments is now very high. This means that those making a lump sum versus periodic payment decision may never have a higher lump sum option.
...Review your retirement income needs and update your plans for retirement, keeping the value of your social security income benefits as an integral part of those plans. Make sure that you are saving enough in retirement and supplemental retirement accounts.