Delaying Social Security can outperform investment returns

The May 2014 edition of Investment News has an article by Mary Beth Franklin discussing the benefits of delaying social security benefits.

We have discussed the advantages and disadvantages of taking social security early, on time, and late. It’s obvious that you can’t collect social security from the grave. As Franklin says “you must be present to win.”

The person who begins before full retirement age gets full use of his money to spend or invest. Waiting to collect means that while you get a much larger check, you have to make up for the money you failed to collect earlier.

But if you don’t need the money at age 62 or 66, delaying social security can be thought of as investing in an annuity to be used later in life. Based on one analyst’s calculations

“those who reach age 90 (which would be the 28th year after delaying) have generated the equivalent of a 5% real rate of return in what is essentially a government-backed bond.”

Social security payments are indexed for inflation.

“The assumptions that are embedded in the social security formulas and benefits … were built when longevity was shorter and interest rates were higher.”

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