Q: In a recent column, you advised a reader to delay drawing his Social Security to increase the amount of Social Security he would have when he finally hangs it up. Why couldn't he go...

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Q:

In a recent column, you advised a reader to delay drawing his Social Security to increase the amount of Social Security he would have when he finally hangs it up.

Why couldn’t he go ahead and draw the Social Security at 65 and invest that money?

I know he would pay taxes on the Social Security income, but he would have in the neighborhood of $1,500 a month to invest, which would add up to about $90,000 in five years.

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Hopefully, he would invest it wisely and have some growth. If he waited until he was 70 to begin drawing Social Security, he would draw about $1,000 more a month. It would take him 7-1/2 years to make up that $90,000.

Am I figuring this correctly? I will be eligible for full Social Security benefits in February, which is why I have such a keen interest in this.


A:

The primary issue here is secure monthly lifetime income in retirement. So we need to compare incomes, not make bets on catch-up times.

Another reason to consider income alone is that no one knows how long he or she will live. It may take 7-1/2 years to “make up” that $90,000, but a typical retiring couple has a joint life expectancy of nearly 25 years.

If you simply defer taking benefits for one year, benefits will increase by 7 percent for those born in 1939-40, 7.5 percent for those born in 1941-42 and 8 percent a year for those born in 1943 and later.

The reader was born in 1940, so his benefits will increase 7 percent for each year he defers retirement.

If his benefit at full retirement age is $1,800 a month, it will increase by 7 percent if he starts taking the benefits a year later. That’s an increase of $126 a month, or $1,512 a year.

If he took the benefit income and paid no taxes on it, he’d have $21,600 to invest in a life annuity.

According to www.immediateannuity.com that would buy a lifetime income with 100 percent survivorship benefits with 20 years guaranteed of $118 a month.

Note that this income would be fixed, not indexed to inflation. Also, the guarantee is for only 20 years, and the joint expectancy of a couple is nearly 25 years.

Taxation of the benefits saved, of course, would reduce the amount of money to invest — and the monthly annuity income.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.