Delaying Social Security Retirement Benefits: the Bridge to Better Outcomes in Defined Contribution Plans?
Dec 1, 2022
5 mins
There are few strategies as widely touted among retirement academics as delayed claiming of Social Security benefits; however, the average Social Security claiming age today is only approximately 65. This means that many retirees are limiting their potential income in retirement.
The breakeven return required to outperform delayed claiming varies by household, but the annual nominal lifetime geometric return is likely to be somewhere around 9-10% for most DC participants who would actively consider delaying, which is a relatively high hurdle.
When focusing only on DC balances, less than 10% of participants are estimated to be able to delay claiming Social Security benefits to age 70 while maintaining a reasonable liquidity cushion. This is important for plan sponsors who are considering offering, or allocating to, longevity protected solutions, such as annuities, since participants are unlikely to have enough DC savings available to fund both (and delayed claiming of Social Security is currently more economically advantageous than purchasing an annuity, on average).
