Delaying taking Social Security pays off

Retirement and anxiety. Let's face it: There are probably few English words more inextricably linked. Unless you're among the fortunate few who could quit working tomorrow and never have to sweat about paying your bills, you're likely to feel some measure of worry at the prospect of leaving the workforce and losing a paycheck.

I'm not here today to suggest you shouldn't worry - I'm plenty concerned myself, as are most people I know. I'm here to remind you that worry and avoidance, long my own primary strategies, don't really qualify as a plan.

That's why I turned for advice to Steve Sass, program director of the Financial Security Project at Boston College's highly respected Center for Retirement Research.

Sass looks at a basic question many people face - when to start taking Social Security payments - in a different way than usual. He calls it the option of "buying an annuity from Social Security." As I'll explain, it's worth considering whether his idea is one that can work for you.

Sass, I should note, isn't sanguine about retirement - including his own. Lots of his research centers on the shaky transition America has been making over recent decades away from an era when private pensions and Social Security, both with their predictable "defined" benefits, stood as the twin pillars of our retirement system.

It's a complicated story, with lots of players and push and pull from various directions. The short version is that the old system has been fading since the 1980s. That's when the 401(k), once seen as a way to aid people not covered by traditional pensions, began to win attention as a retirement model for an increasingly mobile workforce.

Sass says the pull of the 401(k) was compounded in the years that followed by factors that pushed many pension plans aside or into trouble, such as financial shocks and U.S. companies' struggles to compete against foreign businesses that didn't face big pension costs.

The bottom line is that we live in an era when risk, like many former government services, has itself been largely privatized - or as Sass puts it, "pushed onto the little guy." Lots of us consider this a failed experiment, because individuals have far less ability to manage and spread risks than large institutions or governments. But that's a topic for another day.

To borrow from Donald Rumsfeld's notion about invading Iraq with an underequipped military, you've got to face retirement with the tools you have, not the ones "you might want or wish to have at a later time."

In other words, if you're 50 or 60 today, you can't rewind the clock and begin squirreling away more money than you actually did decades ago. You can push your kids to do better, and tools like default savings plans can help. But those monthly numbers are the army you have.

The good news? There's lots of good advice for how to manage that army, including calculators and other tools, at the Center for Retirement Research's website, SquaredAway.bc.edu.

For now, let's consider Sass' proposal, outlined in a 2012 paper, for how you can "buy an annuity from Social Security."

It's not literally an annuity you buy. Instead, you use assets to delay collecting your retirement benefit until you turn 70. By Sass' calculus, that annuity will pay you an income equal to about 6 percent a year on the money you put into it, vs. similar private annuities paying about 4 percent.

Sass knows many people can't afford to wait for benefits or have other good reasons, such as health concerns, to start collecting. But he says the upside of waiting is poorly understood. If you start collecting at the early-retirement age of 62, you'll get 25 percent less each month than your "full retirement" benefit. If you postpone till 70, you'll get 32 percent more.

Do the math, and the difference demonstrates what Sass calls "the enormous power of delay." If you can make it till 70, he says you'll get a check that's 76 percent higher than at 62.

If you can't manage to work till the older age, Sass notes that you can try to live off one of the "piles of money" you've saved for retirement. For most people, that means drawing on home equity.

Sass suggests strategies for doing so, as any good financial adviser would. He notes, for instance, that reducing costs by downsizing can be a smart decision, but that it's something a lot of people talk about but few do. Another approach is taking a reverse mortgage, he says.

Retirement is confusing and, yes, anxiety-producing. But Sass is emphatic: "The best thing you can do is delay taking Social Security." It's not quite magic - just a financial strategy. But he has solid numbers to back it up.

215-854-2776 @jeffgelles