Should You Wait on Social Security?

A perplexing problem for many retirees and near retirees is when to start receiving Social Security. There are a number of important dates:  begin at 62, full retirement age, have to start at least by 70. The longer you wait, the higher your payment - like most annuities - but if you die before you apply, you lose out.  The later consideration, of course, is why many just throw their hands up and take it at 62.

Others spend a lot of time trying to work out the brea-even point and then assess the odds that they will live past that point.

Here is another way to look at the problem, presented by Steven A. Sass of the Center for Retirement Research at Boston College - Should You Buy An Annuity From Social Security?

For comparative purposes, he presents the following table of inflation-protected annuity rates obtained from the Vanguard Annuity Calculator, January 2012.

AGE	MEN	WOMEN	COUPLES
62	4.5%	4.1%	3.4%
63	4.7	4.2	3.5
64	4.9	4.4	3.6
65	5.1	4.6	3.7
66	5.3	4.7	3.9
67	5.5	4.9	4.0
68	5.7	5.1	4.2
69	5.9	5.3	4.3

The table shows that men have a higher payout than women (because women live longer) and that the payout drops for an inflation-adjusted annuity that lasts until the second person dies.  As an example, the table shows that, if a 66-year-old male purchases a  $100,000 annuity, he can expect to receive $5,300/year, inflation adjusted for as long as he lives.

The annuity is an interesting option in that the payout rate is considerably higher than the safe withdrawal rate from the so-called retiree's "nest egg."  This safe withdrawal rate is typically found to be between 3% and 4.5%, depending on the study.  A huge negative in purchasing an annuity is that control of the funds is lost - for emergency purposes as well as for leaving an inheritance.  This gets balanced against the fear of running out of money.

Sass argues that delaying taking Social Security is equivalent to purchasing an annuity from Social Security and  is another option to consider.  He presents an example where a retiree would receive $12,000 at age 65 and $12,860 at age 66 if he delays for 1 year.  If he delays and takes $12,860 from savings to pay his bills, then the annuity rate would be $860 (additional lifetime inflation adjusted payment)/$12,860 (amount taken from savings)  = 6.7%.

Sass presents two important tables in his article, that show the increase in payment on a percentage basis for delaying at various ages as well as the annuity rates from delaying Social Security, the retiree can compare to safe withdrawal rates and annuity rates offered by insurance companies.  He concludes "...buying an annuity from Social Security, especially in today's low interest rate environment, is the best deal in town."

Disclosure:  The information presented here is for informational purposes.  No recommendation is made.  Individuals should consult with a professional or do their own research before making financial decisions.