September 5, 2023 – Welcome back to a new blog post in the Safe Withdrawal Rate Series! It’s been a while! So long that some folks were wondering already if I’m all right. Nothing to worry about; we just had a busy travel schedule, spending most of our summer in Europe. First Italy, Switzerland, Austria, and Germany. Then, a cruise through the Baltic Sea from Sweden to Finland, Estonia, Latvia, Poland, Germany again, and Denmark. But I’m back in business now with a fascinating retirement topic dealing with Social Security timing: What are the pros and cons of deferring Social Security? If we set aside the ignorant drivel like “you get an 8% return by delaying benefits for a year” and look for more serious research, we can find a lot of exciting work studying this tradeoff. Earlier this year, in Part 56, I proposed my actuarial tool for measuring the pros and cons of different Social Security strategies, factoring in the NPV/time-value of money consideration and survival probabilities. A fellow blogger, Engineering Your FI, has done exciting work studying this tradeoff using net present value (NPV) calculations. And Open Social Security is a neat toolkit for optimizing joint benefits-claiming strategies.
But those calculations are all outside of a comprehensive Safe Withdrawal Rate analysis. How does Social Security timing interact with Sequence Risk? For example, can it be optimal to claim as early as possible to prevent withdrawing too much from your equity portfolio during a downturn early in retirement? In other words, if you’re interested in maximizing your failsafe withdrawal rate, you may feel tempted to pick a potentially suboptimal strategy from an NPV point of view. Sure, you underperform in an NPV sense on average if you claim early. But hedging against the worst-case scenarios may be worth that sacrifice.
Let’s take a look…Continue reading “Social Security Timing – SWR Series Part 59”