Thomas N. Bethell, Visiting Scholar, National Academy of Social Insurance
That headline – atop a recent Wall Street Journal column by Jack Hough, associate editor of SmartMoney.com – pretty much says it all.
Hough writes: “For an investment return that tops those offered by hedge funds, insurance firms or Wall Street banks, baby boomers should look to Social Security… All you need is a way to make ends meet while delaying the start of Social Security benefits from age 62 to as old as 70.”
As NASI made clear in a 2010 brief, there are major advantages to waiting – if you can – to start collecting Social Security benefits. Although workers can get benefits at age 62, if you can wait until you’re 70 your benefit will be about 76 percent higher than it would be if you had started collecting benefits at 62. It pays to delay even if you can’t wait until you’re 70.
To put these advantages in investment terms, Hough asked John Shoven, director of the Stanford Institute for Economic Policy Research, to run some numbers. Among his findings:
For an unmarried woman in average health, the payoff for waiting until age 67 to collect is the equivalent of buying a long-term bond that pays 4 percent annually.
For a married couple, if the higher-earning spouse delays payments from 62 to 70, but at age 66 the lower-earner begins collecting spousal benefits, as Social Security allows, the return is the equivalent of owning a 7-percent bond.
“Not just any bond, either,” Hough points out, noting that an equivalent private-sector bond would have to be both government-guaranteed and inflation-proof. But no such bond exists.
In the real world, the closest investments are Treasury Inflation-Protected Securities (TIPS), which are government-guaranteed. But 10-year TIPS are currently yielding 0.21 percent annually.
Working past 62 isn’t always possible, especially for workers in physically demanding jobs or with health problems. But for those who can keep working, or who have enough other retirement resources to allow them to postpone claiming Social Security benefit for a few years, the payoff is clearly rewarding.
What about media-stoked fears that at some future date Social Security will be unable to pay full benefits? We heard a fresh round of alarms this week, following release of the 2012 Trustees Report. But Hough quotes Stephen C. Goss, Social Security’s chief actuary, who notes that Social Security has sufficient reserves to pay 100 percent of scheduled benefits until 2033 and about 75 percent thereafter – and that Congress historically has always acted before a deadline for action arrives.
The bottom line, from Stanford’s John Shoven: “If you’re healthy enough to work at 62, you should probably wait as long as you can to collect.” And that’s especially true if Social Security is likely to be your main source of retirement income, as it is for about two-thirds of today’s retirees. Working longer, when feasible, is the single best way to get the best possible return from the safest investment you can make.