You may be tempted to claim Social Security benefits as early as
possible with the idea of investing the payments in the markets. A
retirement expert has crunched the numbers. His conclusion: Unless
you die early, you'll come out ahead by waiting until 70 to collect
As long as you live past 84, you can earn an annual
inflation-adjusted "implied investment return" of more than 3% by
delaying, according to Wade Pfau, professor of retirement income at
the American College of Financial Services, in Bryn Mawr, Pa.
That's considerably better than a ten-year Treasury
inflation-protected security, which recently offered a real yield
Pfau assumed a 62-year-old would be entitled to an
inflation-adjusted $10,000 a year if he waited to 66 to collect. At
age 62, he would get an inflation-adjusted $7,500 each year for
life. Wait until age 70, and his annual benefit in today's dollars
would be $13,200--an extra $5,700 a year than if he had claimed at
Pfau compares the advantages of delaying benefits to a bank
account in which you deposit $7,500 a year for eight years. In the
ninth year, you start withdrawing $5,700 a year for the rest of
your life. What would the interest rate have to be to finance those
withdrawals over your lifetime?
The answer depends on how long you live. Pfau calculated that a
healthy 62-year-old man had a 50% chance of living beyond 84, and a
healthy 62-year-old woman could live to nearly 87. For a
62-year-old couple, the odds were that at least one would live
longer than 90 years.
If the man lived just past his 84th birthday, he would earn an
inflation-adjusted return of 3.2% on his benefits by delaying. A
woman who reaches 87 would earn 4.4%. The couple would get a 5.2%
return if one spouse makes it to 90. The longer you live, the
better the return (see Pfau's table at
For those who think they can do better in the stock market by
claiming early, Pfau says, "you would take on a great deal of
market risk and could end up worse."