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Publication: Investor's Notebook
A REAL LIFE CASE FOR DELAYING SOCIAL SECURITY BENEFITS

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       Investor's Insight - October 3, 2006           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"


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A REAL LIFE CASE FOR DELAYING SOCIAL SECURITY BENEFITS
by Scott Burns

If you're male, healthy and married, you've got an 
investment opportunity few will discuss with you. Over 
the next 12 months the "investment" could provide an 
effective return of 50 percent.

Do I have your attention?

The opportunity is very simple. You don't have to make
bets on the economy, future corporate earnings, or the 
direction of the yen, euro or renminbi. Nor do you need 
insight into the direction of natural gas prices or 
interest rates.

Just defer taking your Social Security benefits.

Each month of deferral will increase your benefits by a 
small amount. But the increases add up. And there isn't 
an investment anywhere in the world that will deliver as
high a "return" with no risk.

Needless to say, this option isn't available to everyone. 
Many men take their benefits early because they simply 
don't have a choice. They need the cash. According to 
research by economist Alicia Munnell, more than half of 
all men take Social Security benefits at age 62. By age 
65, when everyone is eligible for Medicare, nearly 80 
percent of all men are already taking Social Security 
benefits.

But I intend to defer them, probably to age 68 or 69.

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You'll see why when you see the figures that were supp-
lied to me by a representative at my local Social Security 
Administration office. You'll also see how deferring ben-
efits creates more income than taking them.

My Social Security representative told me that I had be-
come eligible for $1,995 a month in benefits last May. 
That's when I reached my full retirement age -- 65 years 
and 6 months for those born in 1940. The benefit, she 
explained, would rise to $2,623 a month (plus adjustments 
for inflation) by the time I was 70 years old, a period 
of 54 months. That meant my benefit would increase by 
$11.63 for each month of delay. Over the course of a year, 
the monthly benefit would increase by $139.56.

It would take over 14 years for the increase in benefits 
to "catch up" on any foregone benefits.

Because of those 14 years, many people decide to take the 
money and run. They'd rather have money now than later.

In fact, they would be better off taking money from their 
taxable savings or IRA accounts and deferring the benefits.

You can understand why by going through a simple example 
with me. Suppose I defer taking my benefits for only 12 
months. That means I will give up $23,940 in benefits. To 
make up for the lost income, I will need to (a) work or 
(b) take money from my investments.

At the end of that time, however, my monthly benefit will 
have increased by $139.56 a month, or $1,675 a year. 

Query: How much would it cost to "buy" that additional in-
come in a private annuity? To find out, I had to price the 
cost of a joint and survivor life annuity with a guarant-
eed inflation adjustment. Inflation-adjusted life annuities 
are rare, but they are offered by Vanguard. You can get 
quotes on its Web site.

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To get that monthly income, with inflation adjustments, 
guaranteed to last as long as either my wife or I am alive, 
I'd have to plunk down $36,111.

In other words, taking $23,940 from one of my qualified 
(tax-deferred) accounts over the next 12 months will do 
the work of investing $36,111 next year. 

Is that a deal or is that a deal?

But what about those 14 years of catching up? What if we 
get hit by a bus?

Well, it's possible. None of us knows how long we will 
live. All we can do is play the odds. Those odds say that 
either my wife or I will live to collect life annuity 
income for 25.9 years -- nearly twice the 14-year payback 
period.

You can discuss this issue or any other topic in the new 
Investor's Insight forum. Check it out here...

 
Investor's Insight Forum

(Investor's Insight reflects the opinions of experts. It does 
not recommend any specific investments, and no endorsement is 
implied or should be inferred. For more information, contact 
the individual firms cited).

COPYRIGHT 2006 UNIVERSAL PRESS SYNDICATE

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