Q. Can I measure the real return I am actually getting by delaying Social Security benefits?
A. There is a recent article actually did a calculation, and figured that the real rate of return by delaying Social Security payments is actually a pretty smart strategy, with a return better than TIPS.
For instance, if one gives up Social Security benefits for 8 years from age 62 to 70, and then draws on the higher payments thereafter until reaching life expectancy, what is the (inflation-adjusted real) internal rate of return one can get from this approach?
The article finds that the benefit for males (life expectancy to age 86) is a 3.58% real rate of return; it's 4.57% for females (long life expectancy) and 5.24% for couples (age 92 joint life expectancy, assuming higher delayed benefit also becomes survivor benefit). Notably, these rates of return are dramatically higher than available TIPS real returns, implying that the decision to delay Social Security (and spend other lower return investment dollars instead) is a good investment trade-off.
The author noted that these trade-offs weren't originally intended to be so 'favorable' - the problem is simply that they were actuarially fair in an era when interest rates were a bit higher and life expectancy was a bit shorter, but haven't been fully updated to the current environment (producing an opportunity for seniors NOW).
For details, you can read the article by yourself here - Providing Better Social Security Advice for Clients.
A. There is a recent article actually did a calculation, and figured that the real rate of return by delaying Social Security payments is actually a pretty smart strategy, with a return better than TIPS.
For instance, if one gives up Social Security benefits for 8 years from age 62 to 70, and then draws on the higher payments thereafter until reaching life expectancy, what is the (inflation-adjusted real) internal rate of return one can get from this approach?
The article finds that the benefit for males (life expectancy to age 86) is a 3.58% real rate of return; it's 4.57% for females (long life expectancy) and 5.24% for couples (age 92 joint life expectancy, assuming higher delayed benefit also becomes survivor benefit). Notably, these rates of return are dramatically higher than available TIPS real returns, implying that the decision to delay Social Security (and spend other lower return investment dollars instead) is a good investment trade-off.
The author noted that these trade-offs weren't originally intended to be so 'favorable' - the problem is simply that they were actuarially fair in an era when interest rates were a bit higher and life expectancy was a bit shorter, but haven't been fully updated to the current environment (producing an opportunity for seniors NOW).
For details, you can read the article by yourself here - Providing Better Social Security Advice for Clients.
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