Social Security: Defer a Year or Invest (Case Study)

In this video we’ll compare John vs. Jane but this time John doesn’t take the annuity he instead he pulls the amount he needs for his income from his portfolio.

Remember, both John and Jane need $27.000 yr in income.

John took Social Security at 66 which paid him $25,000. Thus he needs $2k a yr from his portfolio to supplement his Social Security. With inflation at 3% a year, that means in year two he will need $2060, and in year three around $2100 etc.

Jane on the other hand deferred Social Security for one year, until she was 67. At that point her benefit was $27,000…EXACTLY the amount she needs to live on.

But in the first year, at 66, because she had no Social Security she had to withdraw $27,000 to pay the bills. Thus she started year 2, when she turned 67, with a portfolio of $73,000.

So, who comes out ahead?

John, with his starting portfolio of $100,000 reduced by an inflation adjusted $2k a year or Jane with a starting portfolio of $73,000 never to be reduced again?

We show you by using 4 different rates of return, 2, 4, 6, and 8%. And we find that Jane is significantly ahead in 3 of the 4 scenarios and John is only $2k ahead with an 8% rate of return.

Thus, it seems to further validate the point that deferring Social Security is the way to go.

https://www.nber.org/papers/w22853.pdf

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