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Report: delaying annuity income payments can boost payout by average of 9 percent

By Warren S. Hersch

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Working just one more year beyond the age of eligibility to receive an annuity income stream can increase the annual payout by an average of 9 percent, according to a new report.

This finding was disclosed a November 2012 study, “The Impact of Running out of Money in Retirement,” a joint project of the Society of Actuaries Committee on Post-Retirement Risks and Needs and Risks, the Urban Institute and the Women’s Institute for a Secure Retirement. The study’s sponsors undertook the research to identify what causes people to deplete their retirement resources, understand the risk factors that are behind these events, quantify the risk and identify emerging trends for further research.

Working just one more year beyond the age of eligibility to receive an annuity income stream can increase the annual payout by up to 16 percent for the lowest income earners and by up to 7% for the highest income earners, the research shows.

By working five years beyond the age of eligibility, the lowest income earners can boost their annuity payout by 98%. This compares with increases ranging from 42% to 71% for those in higher “lifetime earnings quintiles.”

Similarly, the report notes, delaying retirement can have a positive impact on Social Security income. Citing a hypothetical couple—both age 60, and assuming that one spouse earns $100,000 annually and the other $50,000 annually—the report shows that if both spouses retire at age 62, the cumulative Social Security earnings will top out at $1.65 million at age 80.

If the lower wage earner retires at age 62 and the higher wage earner retires at age 70, the couple’s cumulative earnings will reach $2.373 million. If both delay to age 70 to take income, the couple’s cumulative payments total $2.425 million.

The study also highlights the importance planning for the risk of “shocks,” noting that 67 percent of men and 70 percent of women will experience one or more shocks in a nine-year period. These include medical conditions (67 percent of married couples 50 percent of singles, respectively), over age 70, severe disability (29 percent and 29 percent), cognitive impairment (19 percent and 17 percent) and entering a nursing home (23 percent and 22 percent).