“Buying” an Annuity from Social Security: The Best Deal In Town?

For retired people who are eligible to receive Social Security benefits, some are opting to delay Social Security as they instead look to savings or other means as a retirement income source. Essentially, says a recent report from the Boston College Center for Retirement Research, that option is like buying an annuity from Social Security.

Some originators have also advocated the use of a reverse mortgage for the same effect, in order to delay Social Security and increase the amount ultimately received, although the report did not discuss this option. The Government Accountability Office published guidance on delaying Social Security last July. 

“In effect, they are buying an annuity from Social Security,” BC’s Steve Sass writes of those who are using other means to delay Social Security. “The savings used is the ‘price’ and the increase in their monthly benefit the annuity income it ‘buys.’ Buying an annuity from Social Security is generally the best deal in town, especially in today’s low interest-rate environment.”

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The report weighs three traditional options used to support retirement income including putting savings in safe assets and living on the interest, investing the savings in a portfolio of stocks and bonds to draw out an income, and buying an annuity from an insurance company. 

But the fourth option, “buying” an annuity from Social Security, is a more attractive option, Sass writes. 

“As Social Security and traditional employer pensions now replace a much smaller share of preretirement earnings, buying an annuity also becomes much more attractive. And buying an annuity from Social Security, especially in today’s low interest rate environment, is the best deal in town.”

View the report

Written by Elizabeth Ecker

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  • The article was overly simplistic and had little substance.  The ideas it presented about Social Security were very flawed.

    For example, when it came to one aspect of Social Security benefits  Mr. Sass oddly references in footnote 8 “Rethinking Social Security Claiming in a 401(k) World” (2007) by Mr. James I. Mahaney and Peter C. Carlson.  The referenced article correctly addresses risk and concludes:  “In sum, reasonably healthy individuals and couples may wish to take seriously the potential benefits of delaying Social Security….”  Yet Mr. Sass basically ignores risk and provides no significant caveats.

    Concluding that delaying Social Security benefits “is the best deal in town” with no discussion of risk or other significantly negative factors is sophomoric at best.  The delay strategy  is no purchasing of an annuity except as to its method of payouts.  Beyond the delay strategy cannot be “purchased.”

    Conceptually I agree that too many seniors do not delay Social Security benefits who should.  BUT in fact far too many go into the election process with inadequate advice.  Depending on the Social Security Administration (“SSA”) to provide that advice is fundamentally wrong; technically, SSA employees are not permitted to make such recommendations.

    Mr. Mahaney and Mr. Carlson are absolutely right to recommend that seniors “…MAY wish to take seriously the potential benefits of delaying Social Security….”  [All caps added for emphasis.] BUT no one including Mr. Sass recommends “borrowing” for the purpose of being able to delay those benefits.  That merely “compounds” the related risks.

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