Broker Check

When to file for Social Security?

| February 27, 2018
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Maintaining sustainable distribution rates from a retirement portfolio is that stuff that keeps clients and advisors awake at night. Many professional advisors subscribe to the validity of the 4% rule, which stipulates that a retirement portfolio distribution capped to a 4% annual rate will sustain a retirement portfolio for (30) years. This rule, however, does not take into consideration taxes, sequence of returns, or behavioral risks retirees may face.
So back to my long-time advocacy that Social Security, like pension, and other sources of guaranteed income, should be treated as an asset class; an integral part of the retirement income strategy as opposed to a stand-alone benefit.
I’d like to share a great study completed by Meyer and Reichenstein that shows a clear improvement in how long your retirement portfolio will last if you defer taking your Social Security. It may seem counter-intuitive because this strategy often requires a higher portfolio distribution rate during deferment, but there is a clear benefit once Social Security income begins. In fact, according to their results, shown in the “spending target Social Security at 70 chart”, a 62-year old retiree with a $700,000 retirement portfolio who defers his/her Social Security income until age 70 will increase the lifetime benefit (30 years) from the portfolio by $130,000, and more if he/she lives longer than 30 years.
Read the full study here.
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