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Worth the Wait

Dennis Friedman, 4:05 am ET

IF SOMEONE ASKS ME what my favorite day is, I’d have to say the second Wednesday of the month. That’s when my Social Security check gets deposited into my checking account. I’ve received three checks so far and each one has been a joy. The experts might be right when they say retirees who have predictable income are happier. At age 70, I feel like a little boy who just got his first bicycle.

I waited a long time for my first check—and it was well worth it:

  • I now have the best income annuity you can own. Compared to annuities sold by insurance companies, Social Security has better inflation protection, it’s taxed less heavily and there’s less credit risk.
  • Because I waited until 70, my check is large enough to cover our overhead costs.
  • That larger check reduces the risk that our investment portfolio will run out prematurely.
  • We can spend more freely knowing we have a financial backstop in my larger Social Security check.
  • Delaying my benefits has lowered our taxable income. While I waited to claim Social Security, I was able to do larger Roth conversions, and those mean I’ll have smaller required minimum distributions starting at age 72.

If I die tomorrow, you could argue that I made the wrong decision in delaying Social Security—and you might be right, though my wife will get my benefit as a survivor benefit. On top of that, from a financial point of view, dying tomorrow isn’t my big concern. Instead, what would be more worrisome to me is watching our savings dwindle in our later years—and be left with a smaller Social Security check to fall back on.

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Neal Schering
Neal Schering
1 month ago

It does make sense to feel good about a nice big check that you put off, kind of a like the psychological benefits from delayed gratification. From a math perspective, though, we run the comparisons for IRR and it feels like it comes out to around 6% IRR assuming no future law changes. Again, assuming the difference would have been invested for apples to apples comparison, the last 8 years would have crushed the ~6% IRR breakeven in most portfolios. I do like the Roth conversion point.

Charlie Warner Jr
Charlie Warner Jr
1 month ago

Nothing like “mail box money”

Ormode
Ormode
1 month ago

This is all income and asset dependent. Each individual and couple has to work out what makes the most sense in their particular situation. Are you trying to maximize your income to ensure you have enough to live on, or are you trying to minimize your income to avoid paying huge amounts of income tax and IRMAA?

polamalu2009
polamalu2009
1 month ago

I’m one month behind you but couldn’t agree more. Got up in the middle of the night on Bastille Day to see if that first one made it to my account. Just like waiting for Santa!

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