David Blanchett, head of retirement research for the Morningstar Investment Management division, looked at the tradeoffs of taking Social Security early (age 62) versus waiting to claim until age 66 or 70, assuming the benefits are invested throughout retirement. He found delaying Social Security benefits is especially valuable for females, married couples, retirees who expect to invest in relatively conservative portfolios during retirement, and retirees who have longer life expectancies.
According to a report about the findings, two primary variables affect the outcome—how much one can earn on the invested benefits and how long the investor will live. An individual investor who takes benefits early (at age 62) must achieve returns around 7.0% to 8.3% or higher over their retirement in order to be better off than someone who delayed until full retirement age (age 66), assuming an average life expectancy. In contrast, an investor taking Social Security at 66 would only need returns in the 4.6% to 6.6% range or higher to be better off than someone delaying until age 70.An individual investor who takes benefits at age 62 and earns a 3% return on invested benefits, for example, would only be better off than someone who delayed until 66 if the person lived to about age 79. In contrast, an investor taking Social Security at 66 would be better off than someone delaying until age 70 if they only lived to about age 83.
The research also found spousal survivor benefits significantly increase the potential benefit from delayed claiming ages. For example, if both spouses are the same age and the primary spouse takes benefits early, then dies, the surviving spouse would have to earn 9.3% or higher on the invested benefits throughout retirement to be better off than if the primary spouse had delayed benefits.
Delaying Social Security is a much more attractive form of guaranteed income versus claiming early, investing the benefits, and then using the proceeds to purchase an annuity at full retirement age. In order for an individual to be better off with the latter plan, he or she would need to earn 31.7% per year on the invested early benefits to eventually purchase a large enough annuity given current annuity rates.The report is here.