Should Public Employees Use the Stanford Social Security Strategy?
A critical look at the popular two-prong approach and why public pensions change the rules.
By Tim Hayes, Financial Advisor for the Public and Not-for-Profit Sector
Why the Standard Advice Doesn't Fit Public Employees
The study focused on people and couples working for companies that no longer offer traditional pensions, so there is a need for Social Security to step in and replace them.
Most public employees still have traditional pensions. If they retire at age 66 or younger, a pension might make it easier to wait for the more significant Social Security payout at age 70.
Other public employees work in one of the fifteen states where some or all their municipal employees do not contribute to Social Security. (Some may become eligible through other jobs or marriage and, with the Fairness Act, are eligible for their full earned Social Security benefit.)
Why One-Size-Fits-All Social Security Advice Falls Short
Determining when to take Social Security is more complex than ever for teachers and public employees following the repeal of the WEP/GPO. While strategies like the “Stanford” approach offer a starting point, they fail to account for your pension. Here’s a specialized look at what truly matters for your retirement income.
For MA public employees with new Social Security benefits, book a consultation ($200/hr) to discuss your options.
Explaining the "Stanford Strategy"
To try to develop the most effective retirement income strategy for the middle class, Stanford University’s Center on Longevity analyzed and compared 292 scenarios.[i]
Its conclusion is a two-prong strategy:
Delay taking social security until age 70 by working either full- or part-time.
Withdraw annually from your IRAs, 403bs, 457s, or 401(k)s based on the IRS’s minimum requirement tables.
Prong 1: The Power of Delaying to Age 70
Every year you wait after age 66, your social security benefit goes up by 8%. For example, if you are eligible for $30,000 at 66 but are waiting until you reach age 70, that benefit increases by 32% to $39,600. (After age 70, there is no reason to wait because the 8% stops accruing.)
Social Security Benefit by Filing Age (Assumes full retirement age is 67)
| Filing Age | Benefit (% of FRA) |
|---|---|
| 62 | 70% |
| 63 | 75% |
| 64 | 80% |
| 65 | 86% |
| 66 | 93% |
| 67 | 100% |
| 68 | 108% |
| 69 | 116% |
| 70 | 124% |
Future cost of living adjustments (COLAs) are then based on the higher amount, which is $39,600 in this example. If the Social Security Administration announces a 2% COLA, your amount next year will be $40,392.
The study recommends that married couples have the higher-earning spouse delay taking his or her social security until age 70 while having the lower-earning spouse begin taking social security when he or she hits the full benefit, which is usually age 66.
That way, if the higher-earning spouse dies, the lower-earning spouse’s social security jumps to the amount the higher-earning spouse was receiving.
Prong 2: Supplement with Systematic RMD-Based Withdrawals
The second prong is supplementing your social security by withdrawing from your IRAs or 401(k)s based on the IRS’s required minimum tables. For example, the table might require you to take out 4% of your account value at age 73. If your IRA is worth $100,000, you would withdraw $4,000.
The amount you withdraw each year will change as your account’s value changes and the percentage required to take out goes up.
They recommend keeping between 50 to 100% of your portfolio in stocks. In good years, your withdrawal amount will be higher than when the stock market is down.
The study is based on working until age 70. That way, you will not deplete your IRAs, 403bs, 457s or 401(k)s as you wait. If someone fully retires at age 66, the benefits of waiting to take your social security get more complicated.
Financial Planner Michael Kitces did a study that found it takes to age 80 to break even from having to use retirement assets between ages 66 to 70.[i]
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The New Rules: Navigating the 2025 Fairness Act & Spousal Benefits
Married public employees in those states should be wary of their non-public employee spouse waiting until age 70 to start taking Social Security. Why deplete retirement resources as you wait to begin receiving Social Security, especially if the public employee pension provides a lifetime income guarantee to the spouse upon the death of the public employee?
Plus, now, because of the Fairness Act, those public employees would be eligible for their deceased spouse’s full Social Security payment. Giving them both significant retirement income.
Remember, a spouse is only eligible for a spousal benefit if their spouse is receiving Social Security benefits. (The one exemption is if you are divorced and eligible for a spousal benefit from your ex, you are not required to wait until they take theirs to get yours)
Spousal Benefit (Assumes your full retirement age is 67)
| Your Age | % of Your Spouse’s Full Retirement Benefit |
|---|---|
| 62 | 32.50% |
| 63 | 35% |
| 64 | 37.50% |
| 65 | 43.66% |
| 66 | 45.83% |
| 67 | 50% |
So, a public employee waiting for their spouse to start receiving Social Security pushes out the breakeven point to getting the larger benefit at age 70 to a level they most likely will never reach.
Also, the spousal benefit is half of the member’s full retirement benefit, not half of the larger age 70 benefit. The survivor benefit would be the full age 70 benefit.
So while the elimination of the Windfall and the Government Pension Offset benefits many public employees, it has made determining when to start taking those new benefits more complicated, especially when spousal benefits are in play.
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[i] Vernon, Steve. How to “Pensionize” Any IRA or 401(k) Plan.” Stanford Center on Longevity. November 2017. http://longevity.stanford.edu/wp-content/uploads/2017/12/How-to-pensionize-any-IRA-401k-final.pdf
[ii] Caplinger, Dan. Social Security: Why the 8% “Return” Myth Shouldn’t Make You Wait to Retire. The Motley Fool, Jun 21, 2015. https://www.fool.com/retirement/general/2015/06/21/social-security-why-the-8-return-myth-doesnt-make.aspx
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These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.