Lisa Gray has been a wealth writer since 2001. She has been involved in the wealth management industry since 1988. She is the author of two bestselling books—The New Family Office and Generational Wealth Management.| Delaying Receipt Of Social Security Benefits Should Be A Targeted Strategy In Retirement Planning |
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| Sunday, May 27, 2012 13:02 |
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Clients who put off taking their Social Security benefits not only get a larger check when they do start tapping the fund, they also end up buying an annuity that pays much better in today’s low interest rate environment than commercial annuities. The annuity benefit comes in the form of a benefit check that could be as much as 76% higher if retirees wait until age 70 to start drawing funds. This makes sense and the time to start planning is before clients retire. This Website Is For Financial Professionals Only
Planning in advance has tons of advantages and this is yet another. By planning to delay the receipt of Social Security benefits, you can help your clients build their other retirement savings to take up the slack until age 70.
Commercial annuities have marketing, asset management, and other costs to pay from the sales loads they receive. The increase investors get from waiting to draw benefits costs them nothing extra. Retirees can draw benefits from the fund anytime between ages 62 and 70. Some may choose to continue working until age 70. Others may tap 401(k) plans and IRA savings to cover their income needs until they start drawing Social Security benefits.
Another great reason to wait as long as possible before taking Social Security payments is to provide a larger benefit for spouses in case the primary beneficiary dies. With the low interest rate environment providing little in the way of income for retirees, utilizing retirement savings and waiting until age 70—if possible—to draw Social Security benefits may make a good deal of sense.
Comments (3)...
The 2012 Social Security Trustees Annual report indicated the trust fund would be exhausted by 2033 which is 21 years from now. It is likely that benefits will be reduced probably through means testing and extending retirement dates. A reduction in benefits argues in favor of not waiting. In fact, taking benefits early may be the better option. Unfortunately, there are unknowns but having analyzed the workings of the Social Security trust fund I don't see how benefits can remain at current levels.
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May 25, 2012
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Mitch, thank you for sharing the information about Black Rock. It's always good to have other resources for these kinds of topics.
To 'a guest,' I'm sure there are cases where taking benefits early would be the better option. And, unless things change, younger people may indeed be facing reduced benefits or none at all. The report you reference says that by 2033, there will still be enough money from non-interest bearing income coming into the fund to pay about 75% of all benefits scheduled. It's, obviously, worth waiting a few years if a client is already age 62 since there are only 8 more years to wait. If a client is much younger than that, other factors come into play. In any case, a variety of factors absolutely must be considered in making any type of investment decision. That includes the decision to delay taking benefits. And 20 years may be long enough for Congress to remedy the problem, although the way things are going this year, that still might not be long enough!
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May 25, 2012
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Just an FYI to the advisor community.