Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
- Messages
- 4,629
You probably already know this, but your wording here is pretty fuzzy. Deferring Social Security doesn't "earn more than 8%"Ok, got that. But what if your only other option is to withdraw that same amount each year from your IRA/401k as you wait to age 70? (I'm ignoring spousal/survivor benefits)
If you keep that $ in your IRA, you could be earning more than the 8% that SS is pegged at (hopefully) and in many cases, you're not paying the full tax load in fed/state income tax as you would with an IRA withdrawal.
The monthly benefit goes up by 8% (non-compounded) for each year you delay past the normal retirement age. For those of us with an NRA of 66, that means the monthly benefit if we start at 70 is 32% higher than the monthly benefit if we start at 66.
The inflation-adjusted IRR on deferring from 66 to 70 is:
-100% if you die before 70
-13.4% if you die at 75
+2.6% if you die at 85
+5.6% if you die at 95
(assuming "you" are single.)
Deferring SS works well in those scenarios where living on savings struggles - long lives combined with poor market returns.