I know it sounds like a smart move – by delaying your Social Security benefits you’ll have more “headroom” to do larger Roth Conversions.
Don’t do it.
As mentioned above, when you delay Social Security, you’re forced to draw from your own savings to cover living expenses instead. That means that money is no longer growing and compounding. Had you left that money invested — for example, in the C fund — it could theoretically be growing at roughly 10% gross. In a Roth account, you’d net the full 10%; in a Traditional account, you’d net closer to 7% after accounting for future taxes.
By delaying Social Security, you give up that 7–10% growth on your own money. In exchange, what do you get? The delayed Social Security benefit grows at approximately 2.88% to 3.1% per year, as we calculated above.
So the tradeoff is clear: you’re sacrificing a 7–10% return on your investments in order to capture a 2.88 to 3.1% return on your delayed Social Security benefit. The math doesn’t math.
More articles from Stephen Zelcer on Social Security:
- Is it worth it to delay Social Security to provide a larger survivor benefit for your spouse?
- Updated: When to take Social Security
- How will my Social Security impact my CSRS Offset Pension?
- Fake Social Security (w/Video)
- Q&A – How can you avoid the Social Security earnings test, and minimize taxes using an S-corp?
