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Updated Saturday, December 15, 2012 at 10:01 PM

Scott Burns: To defer or not to defer Social Security? Let’s wait

By Scott Burns
Syndicated columnist

Investing

Q: I just turned 68.

I’m a single woman making about $66,000 a year.

I was planning on drawing my Social Security in two years when I turn 70.

I have about $260,000 in savings and stocks.

A financial adviser said I should start drawing Social Security now because it would take until I’m 85 to get my money back from not drawing now.

My car and house are paid for, and I’m not planning on extensive travel during retirement.

Should I draw my Social Security now, which would mean early in 2013?

You always recommend waiting if you can.

I know I can wait because I will work until I’m 70 at least.

Please let me know if I’m looking at things correctly by waiting until 70.

A: If leaving money to heirs or a charity is a major motivation for you, then you might consider taking your benefits now rather than waiting.

This would reduce the demand on your financial assets for income in coming years.

Allowing growh

This would allow them to grow, which would be really nice for your financial adviser.

But if your main goal is to maximize your consumption and security through the remainder of your life, then you should defer taking benefits until age 70 and use your investment assets to cover the cost of the waiting period.

Recouping benefits

The “payback” period — the amount of time it will take for you to recoup the benefits you forgo during the two years — will be 12.5 years (this includes adjustment for inflation, so it’s in real dollars).

The life expectancy of all American women at your age is now 17.4 years.

It will be 15.9 years when you turn 70.

Your expectancy will be higher because people in the top half of all wage earners live about 4.5 years longer than people in the bottom half.

A good bet

So while no one can say that deferring is a cinch, it’s a very good bet that you will benefit with a higher and more secure income all of your probably longer life.

The clincher on this is the alternative.

If you defer $1,000 of benefits for the next two years, the $2,000 you give up will get you a lifetime benefit increase of $160 a year.

So your $2,000 “investment” will earn you a lifetime 8 percent payout, adjusted for inflation.

Getting a return

Basically, you are making a life annuity investment and getting a return you could not possibly get in the private market.

The people who benefit most from deferral are married couples because if the primary earner defers benefits, the increased benefit will be received during the joint life expectancy of the couple, which is about 25 years.

So for couples it is pretty much a cinch.

For singles, it’s a good bet, but not a cinch.

Questions: scott@scottburns.com

Copyright, 2012 Universal Press Syndicate






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