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Social Security: Why it pays to delay

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Most retirees begin taking Social Security payments before their benefits reach their full potential. Here’s why your clients might want to consider delaying the start of Social Security payments to collect more monthly income later in life.

One of the best tools for combating the twin retirement risks of inflation and outliving retirement savings may be the one that is most often taken for granted. Social Security is inflation-adjusted and guaranteed for a lifetime. Unfortunately, most Americans are not using Social Security to its greatest potential.

Eight out of 10 retirees start taking partial Social Security benefits before reaching full retirement age,1 currently age 66 for new retirees.2 Unfortunately, taking benefits early establishes a lower baseline for all payments going forward. That means even after cost-of-living adjustments, monthly payments will never be as high as they would be if a client had waited until age 66. What’s more, every year a client delays the start of benefits further increases the eventual monthly benefit until he or she reaches age 70.

The chart below compares how much monthly income a 62-year-old might expect to collect if he started Social Security benefits in 2012 versus each year he delays. By waiting until age 70, his monthly benefit would be $4,041, or 82 percent higher than if he had started at age 62.3,4

Seeing these numbers, the first question clients might ask is, “How long would it take to break even?” They even may be concerned they’ll die too soon. But in reality, it’s far likelier that they will live longer than expected. In fact, most retirees would be prudent to plan beyond the average life expectancy. At age 70, that’s an additional 14 years for men and an additional 16 years for women—and half will live even longer. Considering our hypothetical 70-year-old might reasonably expect to collect 168-plus Social Security checks into the future, which benefit do you think he’d rather have?

So, while the lure of starting both retirement and Social Security at 62 is understandable, it may be wise for clients to explore strategies that can help bridge the income gap between their actual retirement and the date their benefits reach their full potential. Here’s why:

  • More monthly income. Most retirees will collect Social Security for 20 to 30 years.5 Maximizing their benefits may provide increased comfort in retirement for decades.
  • Staying ahead of inflation. For many Americans, Social Security will likely be the only inflation-adjusted source of income they have in retirement. Starting Social Security benefits at a higher baseline will ensure even greater protection from the increasing living expenses as your clients get older.
  • A larger survivor benefit. For a married couple in their early 60s, there’s a better than eight in 10 chance that at least one spouse will make it into their 80s.6 Considering widows and widowers are entitled to the higher earner’s full retirement benefit, delaying Social Security may be a good protection strategy.

Fixed deferred or immediate annuities can help provide income in the years between clients’ actual retirement and their preferred Social Security start date. Here are two potential strategies:

Strategy 1: Purchase a fixed deferred annuity at age 55. If the retiree in the chart above had purchased a fixed deferred annuity for $157,000 at age 55, based on current interest rates he’d have $178,077.49 at age 62 —enough to cover the $177,832.20 purchase payment he’d need for an eight-year period certain immediate annuity that would allow him to delay starting Social Security benefits until age 70.

Strategy 2: Purchase an immediate annuity at age 62. If the retiree is already on retirement’s doorstep, he could simply purchase an eight-year period-certain immediate annuity now for $177,832.20. This would provide monthly income that approximates the Social Security benefit he would likely collect between age 62 and age 70 (in other words, monthly income starting at $1,855, plus annual increases of 2.8 percent).

In either scenario, the retiree is able to select a retirement age of his choosing, but still enjoy a monthly income that meets his needs until he reaches the maximum Social Security start age of 70. Going forward, he will receive larger monthly benefits and correspondingly larger cost-of-living adjustments as the years progress.

A strategy that works

When a client should begin collecting Social Security is an important—and individual—financial decision. The advisor who takes the time to understand the role that delaying benefits can help play in maximizing monthly income is key to help building a winning retirement game plan. An annuity strategy can help delay the start of benefits as long as possible, ensuring a lifetime of higher payments and inflation protection. It’s a strategy that works, and it can be accomplished in one meeting with your clients.

To learn more about Social Security and how the decision of when to begin benefits can affect a client’s retirement plans, the Social Security Administration website is an excellent resource, offering everything from benefit calculators to retirement FAQs.


1 “Income of the Population 55 or Older,” Relative Importance of Social Security for Persons 65 or Older, April 2010

2 For the age group entering retirement today (those born between 1943 and 1954), the full retirement age is 66. “Age to Receive Full Social Security Retirement Benefits,” Social Security Online, accessed November 2011:

3 For the age group entering retirement today (those born between 1943 and 1954), the full retirement age is 66. “Age to Receive Full Social Security Retirement Benefits,” Social Security Online, accessed November 2011:

4”Delayed Retirement Credits,” Social Security Online, accessed November 2011:

“Understanding and Managing the Risks of Retirement,” The Society of Actuaries, May 2008.

5 “Benefits Planner (Life Expectancy),” Social Security Online, accessed December 2011: 

6“Simple Life Expectancy Calculator,” Society of Actuaries, last updated July 2010:

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