Delaying Social Security – A Smart Investment?

Is delaying Social Security the world’s best investment? Think about that for a minute.  I will turn 62 this year, making me eligible to claim Social Security retirement benefits. While I have already decided against taking the money early, I still enjoy checking the validity of my decision with some economic due diligence.

A writer at Smart Money magazine recently asked some experts in Social Security at the Stanford Institute for Economic Policy Research to analyze the economic benefit of delaying claiming Social Security in terms of an equivalent retirement investment. The results were very informative.

As one example, if a 62 year old unmarried man in average health waits until age 67 to collect Social Security (instead of age 62), that is the equivalent of buying a long-term bond that pays 3.2% a year. (If that man were a woman, the annual return is 4%.)

The numbers get even better for married couples, if they follow a “restricted application” strategy.  Using this strategy, the  higher-earning married spouse delays claiming his or her own benefit from age 62 to age 70. Instead, that spouse begins collecting spousal benefits at age 66 from the lower-earner’s earnings record. The investment return arising from this strategy is equivalent to owning a bond that yields 7.0% annually!

Actually, the equivalent investment return is even better than from a conventional bond, because the Social Security payments are government-guaranteed, adjusted for inflation, and for most folks, tax-free.  A typical retiree would have to earn more than 10% on a fixed rate, taxable CD to do this well.

As the article points out, the wild card in this analysis is health. But unless my expectations of a normal life span are already in doubt, I am not going to “take the money and run” early just because I am afraid of dying young.

Will you?

Read the full article here.

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