Breakeven Returns for Delayed Social Security ClaimingBreakevenReturnsforDelayedSocialSecurityClaiming

The potential benefits associated with delayed claiming of Social Security retirement benefits is widely covered in the financial press. This piece provides information about the “breakeven return” for various Social Security claiming ages for different longevity planning ages where the individual would technically be indifferent between early and delayed claiming. If he or she can earn a higher return than the breakeven in return, claiming earlier would generally be considered better. The breakeven returns are nominal geometric returns, which means they are the realized returns that include inflation and the impact of volatility and would be net of fees.

The analysis suggests that for most common longevity planning ages (90+) the required breakeven return exceeds 8% for a single individual and is likely closer to 10% for a married couple. While it would be theoretically possible to outperform delayed claiming (e.g., if the portfolio earns more than 8% per year) doing so would likely require a decent amount of risk, while Social Security retirement benefits are generally considered to be risk-free. The breakeven returns for delayed claiming are notably higher than for a life only SPIA (approximately 6%), which suggests delayed claiming should likely be considered for retirees before annuitizing wealth.

Overall, this piece is relatively consistent with other research on the topic, where delayed claiming of Social Security retirement benefits can be an especially attractive way to generate retirement income for those focused on longevity risk.