8
Mark Miller writes about trends in retirement, aging,
and the economy. He is the author of
and writes a syndicated
column for
A delayed Social Security filing can boost your
monthly benefit income substantially. But did you
know that a smart Social Security strategy can
also boost the longevity of your portfolio?
The point was demonstrated in an important
2012
article in the
Journal of Financial Planning
by
William Reichenstein, a professor at Baylor University
who has written extensively on Social Security
planning, and William Meyer, a financial-services
industry veteran.
Reichenstein and Meyer are the co-founders of
SocialSecuritySolutions.com
, a fee-based Social Sec-
urity maximization service. Their article concluded
that a delayed filing—and using assets from your port-
folio to fund living expenses in the early years of
retirement—is an effective way to “buy” additional
annuity income in the later years. And the increased
annuity income lightens pressure on portfolios to such
a great extent that portfolio life can be extended
substantially. They concluded that portfolios ranging
from $
200
,
000
to $
700
,
000
enjoyed the greatest
life extension—anywhere from two to
10
years longer.
The strategy works best for mass-affluent clients
because Social Security represents a larger propor-
tion of total net worth than it does for wealth-
ier households.
Considering the keen interests of retirees in this
subject, I touched base recently with Reichenstein
and Meyer to get their latest thinking on the subject.
It turns out that they’ve updated their research to
look at an additional question: What happens to port-
folio longevity when Social Security filing strategies
are combined with tax-efficient withdrawal strategies?
What follows is an edited transcript of our conver-
sation. Reichenstein and Meyer also have created a
more detailed case study exclusively for Morningstar,
which can be downloaded at no charge as a
PDF
:
Question:
How can delayed Social Security filing
extend portfolio life?
Meyer:
When people come in our door, many say
they plan to file for Social Security when they turn
62
,
even though that’s most often not the best decision.
Most of us have a behavioral bias to take Social Secu-
rity right away, and people don’t really think about
it as an asset. But it’s actually the largest asset most
people have. Delaying your filing and winnowing
down your savings to make up the shortfall in the
early years of retirement makes a lot of sense.
Most financial plans use a
30
-year life horizon from
retirement. If your life is substantially shorter, you
may do better filing earlier because the break-even
point usually is around
80
years of age.
Reichenstein:
But this isn’t just about whether you
live beyond
80
. People are very concerned about not
running out of money during their lifetimes.
Question:
Perhaps people are starting to get the
message about how delayed filing can have a direct
impact on lifetime Social Security income. But I
think many would be surprised to see how this can
affect portfolio longevity. How does that work?
Reichenstein:
Let’s take the example of an individual
who is going to need to spend $
36
,
850
in aftertax
dollars in her first year of retirement, and we’re going
to adjust that for inflation every year thereafter. For
illustration purposes, we’ve set that spending number
at a spot so that the portfolio could last
30
years with
a tax-efficient withdrawal strategy.
Social Security: Delaying Equals
Staying Power for Your Portfolio
Morningstar Research
|
Mark Miller
