Calculator Case Study with Social Security

Some may think that my new software is just another trick to sell annuities.  Nothing could be further from the truth and now I have some new features to prove it.  The point of the software is to solve problems.  Previously it took me several different calculators to figure out an individual case study and my goal is to have one that does it all.  I’ve told everyone for a long time that you need to narrow down your retirement plan to one variable to find a solution.  I am often presented with several variables.  A lot of people come to me without a goal in mind and that’s ok.  It’s my job to help them figure it out.

A case like this came back to me recently and the calculator is what helped me solve the problem.  I had met with this person three years ago and first talked him out of an annuity that wasn’t suited for him.  He has followed along since and now he’s only a couple years away from retirement.  With solid market performance and continued savings in his portfolio, he’s in a strong position.  But several questions remain.  The money is available to retire the way he wants but doing it with the highest level of efficiency takes some precision.  I decided to start with social security and get that out of the way first.

He is 61 and his wife is 55.  They want to retire at the end of 2027 so we have time to figure it out.  They want to wait until age 70 to take social security so that means the biggest expense of retirement is going to come in the early years, when all expenses will come from savings and investments.  I’ve always suggested that it’s best to take social security but it’s hard to ignore the higher payouts available for waiting.  Rather than just offer my opinion it was better to step back and analyze projected cash flows in relation to spending needs.  It showed me a new way to look at social security at a time when I thought I had it all figured out.

If you are retired and you plan to delay social security, spending needs to come from other assets.  That initial cost is almost never factored into the calculation that determines which claiming strategy is most efficient.  The easiest way to look at it is to build a spreadsheet and subtract annual cash flows from annual spending needs.  This gives you an annual gap and if you extend the calculation for 25 years you’ll get a cumulative amount showing the total cost of retirement.  In this case, the cheapest way to finance retirement is for these guys to wait until full retirement age of 66.  Taking early social security produces total gaps that are $200K more over the years and waiting until age 70 is about $70k more expensive.  Below is what it looks like.

Claiming Social Security at 62: Total Income Gap is $2,090,625

Claiming Social Security at 66: Total Income Gap is $1,884,573

Claiming Social Security at 70: Total Income Gap is $1,945,425

It’s easy to see that claiming at 66 is the cheapest way for this couple to retire.  This is where it gets new for me and why I want to share this with all of you.  Let’s use the calculator to simulate market performance in relation to each of the above cash flow scenarios.  In order to see which is best we need to see how their portfolio handles various market scenarios.  Timing of returns on the portfolio will undoubtedly be affected by guaranteed income payments.  Once we can see that we’ll be able to test various options for altering the portfolio to see if improvements can be made. I’ll explain here what happens but all the details will be in the video where you can see the calculator in action.

By each of them claiming at age 62, the portfolio will fail in year 14 of the worst market scenario in history and produce a portfolio remainder of $2.24M in the last 25 years of the market.  Waiting until 66 will make the portfolio fail one year earlier and the worst market period but produce a larger remainder of $2.4M in the recent market period.  Finally, claiming social security at age 70 will cause the portfolio to fail in the tenth year at worst, and leave a remainder of just under $1.4M during a positive market.  Not only does claiming at age 66 result in the least overall cost, but also it produces the best overall portfolio performance.  This is a new way of looking at social security that I’ve never seen before.

It stands to reason that heavy withdrawals put a portfolio in serious danger if volatility is present in the early years.  That’s when the largest withdrawals for this couple are going to happen.  It also makes sense that leaving more money at work in the market will produce larger values when market performance is good.  But I don’t like a portfolio that has a chance of failing so let’s look at ways of giving this couple more assurance of success in the years ahead.  I know you all expect me to go straight to annuities but that’s not the first move these guys should make.

The biggest risk in retirement is in the first few years.  Consequently, that’s also when these guys are making the biggest withdrawals.  My first idea is to remove that risk entirely and set aside enough money to cover the first three to four years of spending.  About 20% of their money in liquid cash means they won’t rely on the market and that will cover everything until the husband turns 66 and starts taking social security.  That alone causes the portfolio to last 20 years in the worst case scenario and it produces a remainder of nearly $2.9M when the market is positive.  One small reposition and no sale involved dramatically improved this situation.  But if we want a plan that can’t fail then we need to go further.

I threw a number out and it ended up working well.  What if they take one quarter of the portfolio and put that in a deferred income annuity that pays in five years when they start taking social security.  That means no risk for five years, and a large chunk of guaranteed income from an annuity going on top of social security.  All total that would be 20% in cash, 25% in an annuity, and 55% of the money still in the stock market.  It keeps them very liquid with plenty of upside potential.  If the market does well over the first few years they will be in a very strong position.  If it doesn’t do well they have nothing to worry about and can wait for a recovery without sacrificing their lifestyle.  Results of this scenario show $1.13M remaining in the worst case and $3.62M remaining in the positive scenario.  Which would you rather do?

Yes, I took a stab at the initial amount in the annuity.  That’s why the calculator has a slider bar to see how the results change with different level allocations to the annuity.  Maybe I got lucky because the 25% allocation seems to be optimal.  Just to reinforce that I want to also show you what a lot of other advisors might suggest.  Instead of setting cash aside I’ve seen plenty of times where they would just suggest the entirety of the safe money go into an annuity that starts paying when they retire.  It produces less money in both scenarios by a significant margin so I am confident that my recommendation is closest to the optimal path.  They have a lot of decisions to make and there are several ways to alter this slightly to give them exactly what they want.

We can do the same thing for any of you.  It doesn’t have to start with an annuity and oftentimes it’s best to analyze other parts of the plan first.  This is the best way to do retirement planning so everything is carefully thought out.  If you are interested in solving your equation then get on my calendar so we can get started.

Have a great weekend!

Bryan

Watch Episode 226: Calculator Case Study with Social Security

Download Episode 226: Calculator Case Study with Social Security on Apple Podcast

Last Updated on May 8, 2026 by Bryan Anderson