Providing Better Social Security Advice for Clients

Providing Better Social Security Advice for Clients

Providing Better Social Security Advice for Clients

By Joe Tomlinson

February 11, 2014

Gates Capital Returns 32.7% Tries To Do “Fewer Things Better”

Gates Capital Management's Excess Cash Flow (ECF) Value Funds have returned 14.5% net over the past 25 years, and in 2021, the fund manager continued to outperform. Due to an "absence of large mistakes" during the year, coupled with an "attractive environment for corporate events," the group's flagship ECF Value Fund, L.P returned 32.7% last Read More

Go to page 2, 3, 4, Next

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

Gender Life Expectancy (years) Implied Real Return Premium over 10-year TIPS @ (0.62%)
Male age 62 24 to age 86



Female age 62 27 to age 89



Last-to-die M/F 30 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.

Go to page 2, 3, 4, Next

Display article as PDF for printing.

Would you like to send this article to a friend?

Remember, if you have a question or comment, send it to [email protected].

Updated on

The Advisory Profession’s Best Web Sites by Bob Veres His firm has created more than 2,000 websites for financial advisors. Bart Wisniowski, founder and CEO of Advisor Websites, has the best seat in the house to watch the rapidly evolving state-of-the-art in website design and feature sets in this age of social media, video blogs and smartphones. In a recent interview, Wisniowski not only talked about the latest developments and trends that he’s seeing; he also identified some of the advisory profession’s most interesting and creative websites.
Previous article Are Returns of Intermediate Bond Funds Persistent?
Next article Tesla Model X To Resemble “Back To The Future” DeLorean

No posts to display