Social Security: To delay or not delay? A couple tools you may have seen for analyzing this question are “breakeven age” and “breakeven portfolio returns.” In an article on Advisor Perspectives, Round Table’s Nathan Dutzmann looks at another option: the breakeven real rate. This is the inflation-protected (TIPS) yield below which someone planning to a given longevity horizon would require fewer dollars to build an income bridge to delayed claiming than to build an equivalent real income with a TIPS ladder to the longevity planning age to supplement immediate claiming.
While this is admittedly not a retiree’s usual decision-making process, this analysis offers some interesting insights, such as:
- It reveals how much of a total return portfolio’s realized risk premium would be required merely to catch up to the benefits of delayed claiming, arguably an inefficient use of the equity risk premium. Think of it this way: The less money you have to spend building safe income for inflexible expenses, the more money is free to pursue the equity premium without sequence risk.
- The relative attractiveness of Social Security delayed claiming is 𝘪𝘯𝘷𝘦𝘳𝘴𝘦𝘭𝘺 𝘤𝘰𝘳𝘳𝘦𝘭𝘢𝘵𝘦𝘥 with TIPS rates, since benefit calculations ignore the prevailing interest rate backdrop.
- Nonetheless, for typical longevity planning horizons (age 90-100), the breakeven real rate — above which delayed claiming is no longer beneficial — is higher than has ever been observed historically in the TIPS market.
- The first year 𝘢𝘧𝘵𝘦𝘳 hitting full retirement age may be one of the most beneficial years to delay, due to the idiosyncratic pattern in the annual step-up from delayed claiming.
- Delayed claiming is more beneficial for females than for males, and more generous still for the higher earner of a married couple, at least to full retirement age, as Social Security benefit calculations ignore these actuarially relevant considerations.
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