Sunday, August 12, 2007

A Graphical Look at Delaying Social Security Benefits

In earlier posts here and here, I provided some figures comparing the effect delaying Social Security on future benefits against the monthly return of other options using the amount of delayed benefits. If a picture is worth 1000 words, then here they are. Should the legends in the chart be too difficult to read, here's a recap:
-- The top jagged line is the increase in monthly SS benefits for the amount of benefits delayed. The discontinuities are due to the benefit formulas set up by current Social Security law.
-- The bottom horizontal line is the monthly 4% rule-of-thumb withdrawal on a retirement fund equal to the delayed SS benefits.
-- The three upward sloping lines are inflation adjusted annuities purchased with an amount equal to the delayed SS benefits
----- Top sloping line is the annuity for a male
----- Middle line is the annuity for a female
----- Bottom sloping line is a joint-and-survivor's annuity

The vertical axis is the rate of return. For instance a value of 0.006 is an initial monthly income of $6 for each $1000 of initial payment. All the payment options shown on this chart are adjusted annually for inflation.

Please read the original posts here and here for further explanation.

In my opinion, the 4% rule-of-thumb withdrawal rate should be adjusted for age. But that would be a topic for another post.

Thanks to "J" at Home Finance Freedom for suggesting the graph.