As few as 1% of Americans delay until the age of 70 to take their Social Security.
I believe there are several reasons for this, but primary among them is that they do not have a plan that will allow them to delay.
Since many retire before the age of 70, delaying their Social Security until then requires a plan to bridge the gap between when their work income stops and their Social Security kicks in. It looks similar to the following:
They are currently in the land of “Retirement”, but are delaying before they hit the land of “Social Security”. To get to “Social Security” land, they need a bridge. For most the bridge is using their own personal investments while they delay their Social Security.
To safely make it across, their bridge needs to be secure.
For those delaying taking Social Security and relying on personal investments, they must make sure that they limit the risk and volatility of the account from which they are taking their investment withdrawals so that they can avoid one of the biggest risks to a retirement portfolio, the “sequence of return” risk.
The sequence of return risk describes the risk of simultaneously withdrawing funds from an investment portfolio while it is going down in value. When this occurs, especially early in retirement, the longevity of an investment portfolio can be undermined.
The best way to avoid the sequence of return risk for the funds that one is withdrawing during the delay of Social Security is to create a separate investment account with extremely low volatility that has enough funds to systematically withdrawal during the delay period.
Is important that you don’t systematically withdraw money, especially in the early years of retirement, from an account that has a high level of volatility and fluctuation.
If you would like to test your retirement portfolio against the sequence of return risk during retirement, please contact me.
