I’m still catching up on some reading – in this case the 2006 winter edition of USAA’s magazine. Scott Burns, a syndicated personal finance writer has an article about why he’s going to delay his social security benefits.
For those unwilling to read the article, I’ll attempt to summarize a couple of quick points as I understand them.
- If Mr. Burns decides to defer earnings for a year, he’ll give up $23,940 in benefits.
- At the end of that year, he’ll make $139.56 a month or $1,675 a year in social security.
- He determines that in order to guarantee that kind of income ($1,675 a year), he’ll have to buy an annuity (with inflation protection) at $36,111.
- Thus he’s getting $36,111 of value for the price of $23,940 – a great deal.
It sounds like great reasoning if you are looking for iron clad guarantee of 7%. That’s a pretty decent return. However, I think he can do better. He ends the article by saying that the “odds say that either my wife or I will live to collect life annuity income for 25.9 years.” If that’s the case, then I would say it’s a little too early to settle for a 7% gain.