Should I Delay Claiming Social Security until 70 and Draw From Retirement Funds Instead?
A paper by researchers at the Center for Retirement Research at Boston College, my alma mater, found that about 1/3 or more workers could benefit from this bridging technique in retirement. The study found that taxpayers with about $250,000 or less in retirement savings could benefit by using the 401(k) assets to obtain “an amount equivalent to their Social Security benefits so they can postpone claiming benefits, thereby increasing their monthly payment when they do eventually claim.” Furthermore, the researchers conclude in their paper, “A Social Security bridge would help individuals reap the benefits of delayed claiming without having to alter their retirement age.”
A few key points to consider:
- Delaying Social Security until 70 significantly increases your benefit. Individuals will receive 132% of their monthly benefit if they delay for 48 months.
- COLA (cost of living adjustments) then become based on the higher initial number, thereby increasing your benefit by a larger amount for the remainder of your life.
- 401(k)s will eventually run dry. Social Security, in theory, won’t run out.
- 401(k) accounts, whose portfolios typically become more conservative as the holder ages, have been shown to have earnings that are not significantly different than the COLA adjustments without the same level of risk.
This goes against some of the conventional wisdom that touching 401(k) assets prematurely is a mistake because the longer the funds stay invested, the bigger the payoff. However, this study’s findings contradict that long-held opinion, particularly for individuals with less savings for retirement.
The decision about when to draw social security and how best to fund your lifestyle in those early retirement years is a complex question that often has a different answer for different people. It would be easy to say everyone should delay taking social security until 70 because the benefit is much larger but health, for example, is a major consideration. What kind of assets do you have to live off of when you retire, and how much of those assets there are other important factors. How much money do you need to support yourself? This study didn’t address all those various issues. However, I think it still shares some useful generalized insight into how individuals should best approach those early years of retirement.