Most retirees are all about getting the most “bang for their buck” in every facet of life. We all are. It would be hard to get more bang for your buck than by delaying Social Security by even just one year. Before you click away from another delay Social Security piece, hang with me as I’d be surprised if you have thought about it in quite this way before. That is how you might view delaying Social Security as the purchasing of an annuity.
Let’s look at two Social Security estimates using Social Security’s Quick Calculator based on earnings of $100,000 per year. The only difference in the two estimates is the year claimed.
Scenario One: Claim Social Security in 2021
Scenario Two: Delay One Year and Claim in 2022
We can see that if you claimed in 2022 versus 2021, you would increase your monthly Social Security check from $2,363 up to $2,549. This is a net increase in 2020 dollars of $186 per month. You may say to yourself, that’s not too much. But if you decided to do this, how good of a deal would it be?
Let’s look at it another way. To increase your Social Security paycheck by $186 per month, you had to “pay” $28,356 ($2,363 x 12 months) because you delayed your Social Security benefit for one year. Effectively, you pay a one-time premium of $28,356 for an “annuity” that pays $2,232 ($186 x 12 months) per year.
If you did this, you have an effective payout rate of 7.87% ($2,232 ÷ $28,356) per year before we even consider the inflation protection that Social Security provides through inflation adjustments (COLAs) - not to mention the other benefits Social Security provides.
By comparison, Single Premium Immediate Annuities today offer 6% or less payout with no survivor benefits and no COLAs. And if we compare it to a portfolio withdrawal, you are likely looking at 4% or lower in this environment.
Therefore, to me, especially given historically low rates, delaying Social Security benefits by at least one year, if not multiple years, is a worthy consideration.
Hopefully, running this calculation for yourself will help you look at your claiming decision through a whole new lens.
Stay the Course,
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This post is not advice. Please see additional disclaimers.