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Social Security: Delaying Equals Staying Power for Your Portfolio Morningstar Research | Mark Miller

look at an additional question: What happens to port- folio longevity when Social Security filing strategies are combined with tax-efficient withdrawal strategies? What follows is an edited transcript of our conver- sation. Reichenstein and Meyer also have created a more detailed case study exclusively for Morningstar, which can be downloaded at no charge as a PDF : http://www.morningstar.com/goto/soc-sec-study

Mark Miller writes about trends in retirement, aging, and the economy. He is the author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living, and writes a syndicated column for Reuters. A delayed Social Security filing can boost your monthly benefit income substantially. But did you know that a smart Social Security strategy can also boost the longevity of your portfolio? The point was demonstrated in an important 2012 article in the Journal of Financial Planning by William Reichenstein, a professor at Baylor University who has written extensively on Social Security planning, and William Meyer, a financial-services industry veteran. Reichenstein and Meyer are the co-founders of SocialSecuritySolutions.com , a fee-based Social Sec- urity maximization service. Their article concluded that a delayed filing—and using assets from your port- folio to fund living expenses in the early years of retirement—is an effective way to “buy” additional annuity income in the later years. And the increased annuity income lightens pressure on portfolios to such a great extent that portfolio life can be extended substantially. They concluded that portfolios ranging from $ 200 , 000 to $ 700 , 000 enjoyed the greatest life extension—anywhere from two to 10 years longer. The strategy works best for mass-affluent clients because Social Security represents a larger propor- tion of total net worth than it does for wealth- ier households. Considering the keen interests of retirees in this subject, I touched base recently with Reichenstein and Meyer to get their latest thinking on the subject. It turns out that they’ve updated their research to

Question: How can delayed Social Security filing extend portfolio life?

Meyer: When people come in our door, many say they plan to file for Social Security when they turn 62 , even though that’s most often not the best decision. Most of us have a behavioral bias to take Social Secu- rity right away, and people don’t really think about it as an asset. But it’s actually the largest asset most people have. Delaying your filing and winnowing down your savings to make up the shortfall in the early years of retirement makes a lot of sense. Most financial plans use a 30 -year life horizon from retirement. If your life is substantially shorter, you may do better filing earlier because the break-even point usually is around 80 years of age. Reichenstein: But this isn’t just about whether you live beyond 80 . People are very concerned about not running out of money during their lifetimes. Question: Perhaps people are starting to get the message about how delayed filing can have a direct impact on lifetime Social Security income. But I think many would be surprised to see how this can affect portfolio longevity. How does that work? Reichenstein: Let’s take the example of an individual who is going to need to spend $ 36 , 850 in aftertax dollars in her first year of retirement, and we’re going to adjust that for inflation every year thereafter. For illustration purposes, we’ve set that spending number at a spot so that the portfolio could last 30 years with a tax-efficient withdrawal strategy.