Delaying Social Security Is the Best Annuity

I hear from many people that they plan to take Social Security as soon as possible at age 62, or at the very latest, full retirement age, which ranges from age 65 to 67. As I’ve written about before, two reasons you might consider taking it early is because (1) You don’t believe Social Security will be around and (2) you might die early.

On the first issue, I believe Social Security is too foundational to the American retirement for it to go away and if we use history as a guide, they will likely grandfather in older segments of the population for any changes. On the second, if you have a history of short family longevity, you might consider taking it early.

Those two issues aside, let’s look at the numbers.

Example 

Jim’s benefit is $2,500 at full retirement age (66). If he delays 1 year, it grows 8% to $2,700. If he delays, he has paid $30,000 ($2,500 X 12) for $2,400/year [($2,700 - $2,500) X 12].

For comparison, if you bought a single life annuity on the private market for $30,000, you would probably only get $1,800/year (6%) and in the current investment environment we’re in, $1,200/year (4%) would be an advisable withdrawal from a diversified portfolio. By comparison, $2,400/year (8%) is a pretty great deal!

Thank you for reading,

Alex

This blog post is not advice. Please read disclaimers.