Social Security Retirement and QLAC Considerations

Recent articles about Social Security show that uncertainty in the security of Social Security system makes planning next to impossible.  A May 2015 Money magazine article states that, generally, a single beneficiary breaks even on taking early benefits if he or she lives to age 80½.  The article presumably assumed benefits will not be cut in the future.  It also notes that a 65 year old has a 49 chance of living to age 85 or older.  (Under current law, benefits are scheduled to continue to 2033, and thereafter be cut by approximately 23 percent. 2033 is when the “trust fund” is expected to run out.  However, the trust fund is merely comprised of IOUs from the federal government (which has no accumulated assets).)  An April 2015 article by retired actuary Ken Steiner analyzed the prudence of taking Social Security at age 65 (instead of deferring until age 70), and purchasing a QLAC (life annuity beginning later in life, such as age 85, funded from an IRA or qualified plan’s assets with assets that otherwise would have been distributed from an IRA for subsistence.   Based on an analysis using certain currently reasonable assumptions, assuming Social Security benefits will never be cut, Mr. Steiner concluded that using the retirement savings that would have been expended to make it to age 70 to buy a $52,000 deferred annuity beginning at age 85 makes more sense than not buying such an annuity and waiting until age 70 to begin receiving Social Security benefits.  Then, Mr. Steiner noted the 2033 cut changes the analysis (making taking Social Security earlier even more appealing).  He also noted that interest rates will likely increase and more companies will begin selling QLACs, with the likely result being reduced costs for QLACs.  He did not make a final recommendation.  It appears that holding off on buying a QLAC might be the best move at this time.