The consulting firm October Three has written a nice article about the
potential financial advantages of delaying commencement of Social Security
benefits until age 70. Readers of this blog will remember that we discussed this
strategy and pointed readers to a spreadsheet on our site that would enable
retirees to use their accumulated savings to "bridge" the period from age of
retirement until age 70 (or some other age) in our post of July 23rd of this
year.
Using that spreadsheet, information for the example retiree in the October
Three article, accumulated savings of $500,000 and the recommended assumptions
described in this website (5% investment return, 3% inflation and survival until
age 95), readers can confirm that if the example retiree retires at age 62 uses
his accumulated savings as a Social Security bridge and defers commencement of
his Social Security benefit until age 70, he can expect (under the
recommended assumptions) to have total lifetime real retirement income of
$39,130 per year starting at age 62 using the delay strategy vs. $35,655 per
year if he commences Social Security at age 62. As can be seen in the
spreadsheet runout tab, at age 70 he will be expected to have $305,906 of
accumulated assets at age 70 under the delay strategy as compared with $514,533
under the non-delay strategy (commencing Social Security and level withdrawals
from accumulated savings at age 62). The example retiree has essentially used a
total of $240,804 of his accumulated savings to purchase a higher Social
Security benefit commencing at age 70. To see the calculations using the delay strategy follow this link. Note that the estimated Social Security benefit commencing at age
70 has been increased by 3% per year for eight years of assumed CPI increases.
October Three argues that, "Rather than annuitizing retirement wealth,
participants can get a much better deal by spending down retirement assets and
deferring Social Security." While I like the article, I will have to reserve the
right to pick a small bone with October Three over their use of "much better"
here, as our post of September 22, 2013 shows comparable increases in total
retirement income through combinations of self-insuring and purchase of deferred
annuities (immediate, delayed or deferred).
When considering the delay strategy, readers will also want to factor in
other considerations, such as comfort in spending a significant amount of
accumulated savings in the early years of retirement, taxation of Social
Security benefits, possible future changes in Social Security law and possible
changes in general interest rates/investment returns.
