Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Dynamic Maximizers®
  • Retirement Compounders®
  • Free Email Signup

The Big Reward for Delaying Social Security

November 6, 2020 By Jeremy Jones, CFA

By Steve Heap @ Shutterstock.com

In The Wall Street Journal, David Blanchett explains the rewards retirees will reap by delaying their Social Security payments. He writes:

Many people worry about the long-term viability of the Social Security retirement system these days. Pre-pandemic estimates put the trust fund going to empty around 2034, but given everything going on with our economy that estimate seems a tad optimistic.

When the trust fund goes to zero, though, it doesn’t mean benefits go to zero. At that point benefits would be based on taxes collected. Assuming nothing changes policy wise, that would reduce benefits to approximately 76% of what they are now.

While I think it is unlikely individuals currently receiving Social Security retirement benefits would experience a cut, the potential impact of a benefit reduction for others does raise a question: Should I get the most out of my benefits while I can?

So, does a potential shortfall make the argument for claiming benefits as early as you can starting at age 62? I recently did some math and ran an analysis to determine how different benefit reductions, expected retirement durations, and portfolio returns affect the optimal claiming decision.

Claiming early can be attractive if you think you can outperform the additional income associated with waiting. The problem is the investment outlook today isn’t all that promising, with 10-year government bonds yielding less than 1%. Expectations for stock returns are generally well below historical long-term averages too.

My analysis shows that there’s a pretty clear pattern where people who expect to live longer, plan on investing more conservatively, and expect a small potential future benefit cut are more likely to be better off delaying claiming Social Security retirement benefits.

For example, assuming average life expectancy, no change in Social Security benefits, and a -1% real rate of return (which is the current real yield on 10-year Treasures), for every $1 used to delay claiming Social Security benefits the person will get approximately $2.31 back, on average. That’s a 131% rate of return. That’s huge.

A key reason for the high payout is that Social Security benefits don’t decline as interest rates decline (like regular annuities), so the lower interest rates go, the more delaying makes sense.

The math changes when a benefit reduction is factored in–but by not by a lot. For average life expectancy and a real discount rate of -1%, assuming a 25% benefit cut, the wealth impact of delaying is still +72%.

Claiming early really only makes sense if you assume a relatively large benefit cut (at least 10%), a relatively high rate of return (a nominal return of at least 5%), and if you think you’re going to live less than the average American.

Even for these people, though, delaying could still make sense based on the other aspects of Social Security benefits, like survivor spousal benefits and their tax-favored nature.  Social Security benefits are also explicitly tied to inflation, something you can’t get anywhere else today.

Read more here.

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • The Task of Investing for Your Retirement Security
  • Social Security Scams
  • Common Social Security Myths Debunked
  • Author
  • Recent Posts
Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
Latest posts by Jeremy Jones, CFA (see all)
  • Is It Time to Talk About the Defects of Index Funds Now? - August 12, 2022
  • Disney Catches Netflix in Streaming Wars - August 11, 2022
  • Prices for Electric Vehicles Going UP - August 10, 2022

Search Young Research

Most Popular

  • If the Phone Doesn’t Ring…It’s Me
  • Big Corporations Making Big Investments
  • DESANTIS RESISTS: Suspends Soros-Funded Destruction of America
  • Federal Reserve Governor Signals MORE Big Rate Hikes
  • SHOCK: Home Prices FALL in San Francisco as Market Dries Up
  • Your Retirement Life: Let the Slow and Steady Be Your Way of LIFE
  • Resilient Nordic Market Spawns Fast Growing Offshoot
  • The Power of a Compound Interest Table
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • BIDEN UNCONVINCING: Saudis Holding Fire on Spare Capacity

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Could this Be the Vanguard GNMA Winning Edge?

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

RSS The Latest at Richardcyoung.com

  • Is Merrick Garland Taking the Blame to Protect Biden?
  • Our Commander-in-Chief Fumbles On
  • Buying A Boat: Who’s Looking Out for You?
  • DOJ Career Officers Disgusted by Garland’s Political Raid on Trump
  • Dick Young’s Investing in Fine Wine
  • If It Smells Fishy … ?
  • The Great Jon Rappoport on Kari Lake
  • How’s the Economy?
  • Your Survival Guy’s Favorite Number is 72: Here’s Why
  • DEMOCRATS PLAY DIRTY: Megynn Kelly Calls Bulls#$t on “Classified Documents” Story

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2022 | Terms & Conditions

 

Loading Comments...
 

    loading Cancel
    Post was not sent - check your email addresses!
    Email check failed, please try again
    Sorry, your blog cannot share posts by email.