I just read an article by a well known financial planner. He gave an example of a 66 year-old woman who had the choice of filing for Social Security and receiving approx. (he doesn't say for sure) $3,000, or waiting until age 70 to get an additional $1,050. I don't know what COLA he used, so I can't be sure what the age 66 amount is. His argument was if the woman waited, and spent down $150,000 of her savings during those 4 years, the added $1,050 benefit per month was equal to plopping down $250,000 on an annuity to get the same $1,050 per month guarantee.
This logic has me scratching my head on a couple of levels. First, let us assume the client does have the $150,000 (or the $250,000?). Second, the assumption is the only investment alternative available is the annuity. Annuities are priced to ensure the issuer makes money. Anytime some middleman skims off some of your gain, it benefits them, not you. One thing many people may not know, when you die, that annuity money remains with the issuer, not your heirs. It is gone forever! I think a better plan would be to file at 66 and spend the Social Security benefit checks and to let the savings build through the magic of compound interest. The life expectancy for a 66 year-old woman in America today is roughly 20 more years. To keep the math simple, I'll just use the base monthly numbers and not try to predict COLA or inflation:
At age 86 with a modest 5% gain on her investment, she would have $193,002 on her 86th birthday. Plus, in the meantime, if she dies or needs a big chunk of money, that $150,000+ is always there. If she spent down the $150,000 and started depositing the extra $1,050 every month after her 70th birthday, she would have $186,025 on her 86th birthday. On her 70th birthday, she'd have zero savings and the promise and hope the government will pay her an extra $1,050 per month. I say keep your money!
Another down month, but a 10.8 cents per share dividend helped soften the blow. At the end of March:
Willie had a month end balance of $195,794.38. His monthly benefit check (including the COLA) would be $2132.68 if he changed his mind and decided to file for benefits at this time.
Irma deposited the $2011 check and withdrew $2413 from her existing account, so her net total is $216,363.46.
Sam used his benefit check to supply $1583.24 of his monthly expenses. His untouched IRA account sat at $217,446.35.