Social Security as an Asset Class?

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A High Guaranteed Return!

By Rick Kahler CFP®

Rick Kahler CFPOnce you hit age 62, what’s an investment class that can give you a high guaranteed return with almost no risk; Bonds, Equities, or Commodities?

Nope; it’s social security.

There’s just one catch. You can’t actually get your hands on the money until you’re 70.

The Catch

One of the most common issues for those approaching retirement age is determining the right time to file for Social Security. If you file at age 62, you will receive benefits longer. Yet your monthly benefit for the rest of your life will only be about 75% of the monthly amount you will receive if you file at your full retirement age of 66 to 67. If you wait even longer, the benefit amount is higher still.

Those who are unable to work and don’t have sufficient retirement savings may not have a choice about filing for Social Security early. Those who don’t have a compelling need for early Social Security income may still consider early filing as an option, with the idea of investing the money for their later retirement.

Recent Thoughts

According to a recent article by Karen DeMasters in Financial Advisor magazine, this is not a good choice. She cites research done by William Meyer and William Reichenstein of Social Security Solutions Inc ( in Leawood, Kansas.

One big drawback to investing your Social Security benefits is the penalty you pay if you are still working. If, between age 62 and your full retirement age, you earn more than $15,120 a year, your benefits are reduced. So you’d start with a smaller benefit amount, have it cut even further, and not be left with a whole lot to invest.

Even more important, however, is a number that Meyer and Reichenstein emphasize: 8%. This is the amount that your Social Security benefit increases every year between age 62 and 70 that you delay filing. In essence, if you leave your Social Security benefits in the government’s hands instead of investing them yourself, you are guaranteed an 8% annual return on that part of your retirement portfolio. This doesn’t include cost-of-living increases.

Taking early benefits and investing them is only a good idea if you are sure you can get more than an 8% return. Any investment likely to produce a return higher than 8% would come with risks that are unacceptably high for a retirement-age portfolio.

Mature Woman

Social Security Risks

There are only two real risks associated with letting your Social Security benefits accumulate until later than age 62.

One is the possibility that Social Security won’t be there when you do retire. Given that the delay is only a few years and that Social Security is now the retirement plan of most Americans, this is extremely unlikely.

The second risk is that you won’t live long enough to collect an amount equal to what you would get if you started benefits early. Unless you are facing a terminal illness, however, chances are that waiting until at least full retirement age is still the wisest option.


If your health is good and you don’t need retirement cash immediately, you are far better off to delay filing. Even if you are facing circumstances that might make early retirement a necessity, it’s a good idea to look at all your options and try to find creative ways to put off filing as long as possible.

Once you reach age 62, Social Security is always an option. It gives you a doorway out of the working world any time you really need to take it. But for every year you can delay walking through that door, you gain 8%. That’s an investment return well worth waiting for.


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3 Responses

  1. Will Social Security Retire Before You Do?

    People have traditionally seen Social Security benefits as the foundation of their retirement planning programs. The Social Security contributions deducted from workers’ paychecks have, in effect, served as a government-enforced retirement savings plan.

    However, the Social Security system is under increasing strain. Better health care and longer life spans have resulted in an increasing number of people drawing Social Security benefits. As the baby boom generation (those born between 1946 and 1964) has begun to retire, even greater demands are being placed on the system.

    In 1945, there were 41.9 active workers to support each person receiving Social Security benefits. In 2013, there were only 2.8 workers supporting each Social Security pensioner. And it is projected that there will be only 2.1 active workers to support each Social Security beneficiary by 2033.1

    Although Social Security payments are typically adjusted for inflation, your own income and expenses may rise at a faster pace. And you might have to wait longer than you anticipated to qualify for full benefits.

    It used to be that full benefits were available after you reached age 65. But since 2003, the age to qualify for full benefits has been increasing on a graduated scale based on year of birth. By 2027, the age to qualify for full Social Security benefits will have increased to age 67, where it is currently scheduled to remain.

    That means you may have to wait longer to qualify for full Social Security benefits to start replacing a smaller percentage of your pre-retirement income.

    When calculating the income you will have in retirement, you might recognize that Social Security benefits may play a more limited role. Some financial professionals suggest ignoring Social Security altogether when developing a retirement income plan.

    So no, SS is not an asset class.


    Source: 1) Social Security Administration, 2013

    Note: The Social Security Administration no longer mails an annual estimated benefit statement to all taxpayers. You can view your statement online by visiting and creating your own personal Social Security account on the Social Security website.



  2. Age 70 is the new 65 — here’s why

    Rick – Thanks to the Social Security delayed retirement credit, waiting those extra five years can mean larger benefits.



  3. Study: Social Security will barely cover your health costs

    If you need a reminder that Medicare covers only a portion of retiree medical expenses, check out this report.

    Still an assert class?



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