But those problems are actually beside the point, according to Meyer, who argues that a person cannot beat the 8 percent annual increase that is obtained from waiting to receive Social Security benefits.
“I am frequently asked by advisors, what if I take Social Security early and reinvest the proceeds? The premise is that they can beat the return on Social Security,” Meyer says. “Using an appropriate risk profile for a retiree (50/50 stock to bond portfolio or more conservative) the real return ends up being 0 percent to 1 percent anyway after removing expenses. We contend that it is virtually impossible for an advisor to beat the return on Social Security. They would have to invest in almost all equities, which misaligns the risk for a typical investment.”
Meyer bases his calculations on the 10-year Treasury Inflation Protection Securities (TIPS) rate, which is near zero, and an equity risk premium that is 1 percent below its historic average.
“Moreover, the real rate has been near zero for a couple of years and the Federal Reserve promises to keep the short-term nominal rate near zero through late 2014. So, the implications of a low interest rate environment that appears likely to persist for multiple years should be considered,” he says.