A new study looks deep at how to 'pensionize' your retirement plan

Ben Werschkul
·Washington Correspondent

A new study analyzed a plan for middle-income individuals nearing retirement who want to set up their plans so they can deliver constant payouts – in other words, "pensionize" it.

The study, from the Stanford Center on Longevity, is based on the premise that delaying Social Security as long as possible will maximize the financial health of retirees as they live longer.

Steve Vernon, consulting research scholar at the Center, joined Yahoo Finance’s “On the Move' as part of Yahoo Finance's partnership with the Funding our Future campaign.

For Vernon, the key question was: “How do I create a stream of income that will last the rest of my life?"

Social Security is designed so that the longer you wait to begin collecting benefits, the more you get each month. Retirees currently aged between 65 and 70 will get a standard payout if they begin taking Social Security at the standard age of 66. If they wait until 70, the monthly payout increases 132% to the standard payout.

Numerous studies have demonstrated the benefits of holding off on starting your benefits. If you claim Social Security at age 62, rather than waiting until your full retirement age, or FRA (the age at which a person may first become entitled to full retirement benefits), you can expect up to a 30% reduction in monthly payments. For every year you delay past your FRA up to age 70, you get an 8% increase in your benefit. (In 2018, the maximum Social Security benefit for a worker retiring at full retirement age was $2,788 a month. In 2019, the maximum benefit rose by $73 per month to $2,861.)

First off, Vernon advocates using savings to fund what he calls a “Social Security bridge payment” until you reach age 70 and can take the maximum payout. Such a retirement transition fund “enables retirees to delay drawing down their retirement resources, such as Social Security and 401(k) accounts, for as long as possible, hopefully until age 70,” the report says.

Then, “I advocate that people put together a portfolio of retirement income, just like they have a portfolio of assets while they are saving” he says. The report charts expected lifetime returns from portfolios with 100% equities to ones with 100% intermediate-term government bonds.

The approach is called the “Spend Safely in Retirement Strategy” and the report outlines news implementation details for retirees who wish to use the laws on required minimum distributions to maximize the length of payouts for as long as possible.

The full study is available here.

Ben Werschkul is a producer for Yahoo Finance in Washington, DC.

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