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.
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.
Read the full article here.