Providing Better Social Security Advice for Clients

By Joe Tomlinson

February 11, 2014

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Delayed claiming of Social Security benefits makes overwhelming sense, as do strategies that coordinate claiming by couples. But such strategies are unpopular, despite numerous consumer-finance articles highlighting their advantages. Advisors can add significant value for clients by explaining the benefits of these strategies.

I’ll provide a rate-of-return analysis to demonstrate the advantages of delaying Social Security benefits, discuss why individuals and their advisors have failed to adopt the best strategies and highlight a software product that advisors can use when doing Social Security planning with clients.

The basic analysis

Individuals can choose to begin Social Security benefits at any age between 62 and 70. The lifetime benefits payable increase with claiming age. For those born between 1943 and 1954, Social Security defines age 66 as full retirement age (FRA). The benefit for those claiming at 62 is 75% of the age-66 benefit, and the age-70 benefit is 132% of the benefit at 66. The increased benefit for delaying from age 62 to 70 is 76% (132%/75%).

An individual who begins benefits at age 66 in 2014 and has always earned at least the Social Security maximum over a full career would be entitled to a monthly benefit of $2,641. The age-62 and age-70 benefits would be $1,981 and $3,486, respectively. (These figures and other benefit amounts in this article are all in real, inflation-adjusted dollars, because Social Security adjusts for inflation.)

To examine the benefits of delaying from age 62 to 70, we should compare giving up of $1,981 for eight years to receiving an additional $1,505 ($3,486 – $1,981) for the remainder of life. Life expectancy is the critical element in the analysis. We can measure the delay benefit by doing an internal rate-of-return (IRR) analysis with the age-62-to-70 reductions as outflows and the increases after age 70 as inflows lasting for assumed life expectancy.

Returns from Social Security delay

The chart below shows calculated real rates-of-return for males and females based on delaying Social Security from age 62 to age 70 using mortality estimates I developed from a variety of actuarial studies. I estimated average life expectancies for advisory clients, typically more upscale and healthier than the general population, which added about three years to the estimates for the total U.S. that the Social Security Administration provides.

Implied returns from Social Security delay, using estimated client mortality

GenderLife Expectancy (years)Implied Real ReturnPremium over 10-year TIPS @ (0.62%)
Male age 6224 to age 86



Female age 6227 to age 89



Last-to-die M/F30 to age 92



Source of life expectancy data: Author’s estimates


Because of the inflation adjustments in Social Security, these implied real returns can be compared with yields available in the market for Treasury inflation-protected securities (TIPS). The 10-year TIPS, which are roughly comparable in duration to lifetime retirement benefits for a 70-year-old, provide a real yield after inflation of 0.62% as of late January 2014. We can see that the implied real returns for both males and females are significantly superior to the real yields from TIPS, especially for females, who have a longer life expectancy on average.