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.”
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