2. The Benefit Amount

Since all beneficiaries are assumed to have high income, the benefit amount would start at $30,000 per person per year at age 66, except for the spousal benefit which is 50 percent of the full amount. (The maximum benefit for 2016 is $31,668.) The deferred benefit amount claimed at 70 is 32 percent more than the benefit accrued from 66. The Social Security Administration has estimated that 2.7 percent would be the average cost of living adjustment (COLA) projected to 2024, and our study assumed that the benefit amount will increase by 3 percent per year from 66 to 100.  

Since the beneficiaries are high income, all full-retirement-age and deferred Social Security benefits are subject to 28 percent income tax on 85 percent of the benefit amount. All findings of this study are based on the comparison of the net benefits for full-retirement-age and deferred benefits from 66 to 100.

3. The Leverage Options

We tested our leverage strategy by investing net benefits claimed at age 66 in five vehicles described below as Options A to E. 

For Option A, the leverage is based on investing net benefits in such market assets as stocks and bonds at a 5 percent return in a low cost tax-deferred account with no withdrawal.

For Option B, the net benefits are invested similarly as Option A at a 5 percent return, but they are held in a taxable account. Proceeds from this option provide the funding for further investments in other potential options, such as Option C, an annuity, or Option E, long term care insurance. 

Option C uses an annuity that would be funded to generate income to match the additional Social Security benefits from deferral. The data for the annuity are broken down by gender, as well as for single and joint policies. All annuity data are derived from the website www.immediateannuities.com, and are presented net of tax.

Option D invests the net benefits in an index universal life policy at 6 percent internal growth, which provides a death benefit and cash value as a cash reserve, as well as a potential retirement income starting at age 80 or 85. Data for this option are based on illustrations from Allianz Life Insurance Company, www.allianzlife.com.

Option E uses net benefits to buy a long-term-care policy. The policy data for this option are derived from Lincoln Financial Group’s long-term-care policy known as MoneyGuard II, www.lfg.com.