Retirement Income: Why It’s Best To Delay Social Security

Retirement income planning can be difficult, with worries about where money will be coming from. Now, John Shoven, an economics professor at Stanford University, and Sita Nataraj Slavov, a researcher at the American Enterprise Institute have put together a paper to say why it is better to delay social security.

The Wall Street Journal reports that the two stated in their paper that:

“As Social Security benefits are paid as a life annuity, delayed claiming reduces the expected length of time over which benefits are claimed. Thus, the benefit calculation rules call for an actuarial adjustment so that individuals who claim later receive larger monthly payments.”

According to Seeking Alpha contributor Aaron Katsman, writes that last Friday’s jobs report caused both Goldman Sachs and Bank of America to say that they believe interest rates will stay low until the middle of 2015, which is a huge turnaround from an announcement at the beginning of 2012 that a recovering U.S. economy would let the Federal Reserve start raising interest rates from their current near zero percent level.

Katsman further writes that, according to Bloomberrg:

“The Fed, which has pledged to hold the rate low through at least late 2014, will amend its so-called forward guidance before deciding on a new round of bond purchases, according to the companies. The ‘late 2014’ formulation has now ‘aged’ by six months since it was first adopted, but the economy still looks no better.”


Market Watch notes that Lita Epstein, author of the “Complete Idiot’s Guide to Social Security and Medicare,” states that for each year you delay social security after you reach retirement age (which is usually around 66 for baby boomers), you will get an 8% increase in benefits. Epstein comments, “That’s a 32% increase in benefits if a baby boomer waits until 70.”

And Shoven and Slavov agree, noting that a couple could actually add more than $250,000 to their overall Social Security benefit and retirement income just by using an informed claiming strategy. They write:

“Delaying Social Security is equivalent to purchasing an annuity. An individual who delays forgoes benefits during the delay period in exchange for an increase in benefit payments for life.”

Would you consider delaying social security benefits, knowing that they could add so much to your retirement income if you simply wait until 70 to begin claiming?