How Your DRS Pension Changes the Social Security Timing Decision

The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.

I read something this past year that has stuck with me.

It was a research paper by David Blanchett and Michael Finke. The title is dry. “Retirees Spend Lifetime Income, Not Savings.” But what they found is the kind of thing that quietly changes how you think about retirement.

They looked at how actual retirees use their money in real life, and what they noticed was striking.

Retirees spend roughly 80% of their lifetime income each year. That includes Social Security, pension benefits, and annuity payments. But they only spend about half of what they could safely take from their savings.1
Half.

It shows up across every age group and every income level they studied.

The “license to spend”

Blanchett and Finke have a phrase for this. They call lifetime income a “license to spend.”1

When money lands in your bank account every month, you spend it. When you have to log into a brokerage account and pull the money out yourself, something different happens. You hesitate. There’s a moment where you wonder if it’s the wrong time, or whether you should wait until the market settles, or whether $40,000 is too much.

That hesitation has a real cost in retirement. It shows up as smaller vacations and the trip to see the grandkids that you keep postponing.

The research found that married households with $500,000 to $1 million saved often only withdraw about 2% per year.1 That’s roughly half of what the Guyton-Klinger guardrails research considers sustainable for a 65-year-old couple with a balanced portfolio.2

So the question becomes interesting. What kind of retirement do you actually want to live, and what would let you live it?

Where the DRS pension comes in

Washington State public employees walk into retirement with a head start most Americans don’t have.

If you have a PERS, TRS, SERS, or LEOFF pension, that monthly check is doing exactly the kind of work the research describes. It anchors your retirement income. It’s already doing some of what guaranteed income is supposed to do.

But here’s the thing. For a lot of the public employees I sit down with, the pension by itself doesn’t quite cover the lifestyle they want. There’s still a gap between what the pension pays and what they want to spend.

That gap typically gets filled some combination of the following three options. Personal savings (DCP, IRAs, Roth accounts), part-time work, and Social Security.

So when it comes time to claim Social Security, the question is bigger than “what’s my biggest check?” It’s also a question about how much of your monthly income you want coming from a guaranteed source, and when you want it.

A hypothetical

Take a hypothetical PERS 2 member. Call her Linda. She’s 62 and has $700,000 saved across her DCP and a Roth IRA.

The textbook answer says delay Social Security to 70 to maximize her benefit.

But Linda’s pension is around $40,000 a year, and her spending need is closer to $80,000. To bridge that gap from 62 to 70, she’d need to pull about $40,000 a year from her savings. That’s a 5 to 6% withdrawal rate. The Guyton-Klinger research suggests that’s on the higher end of what’s sustainable, even with all four of their decision rules in place to manage withdrawals during good and bad markets.2

Linda’s other option is to claim Social Security somewhere between 62 and 70. Her check is smaller, but it covers more of that gap, which means she pulls less from savings while she waits.

Is that the optimal answer in a spreadsheet? Probably not.
But the research suggests a retiree in Linda’s position is more likely to actually spend her money if the gap between her guaranteed income and her lifestyle is smaller. She might be winning on paper while underspending in real life.

What I think this changes

I’m not trying to talk anyone out of delaying Social Security. There are good reasons to wait. Longevity is the big one. The surviving spouse benefit matters too. And for some folks, claiming early would actually reduce their flexibility to do Roth conversions in their 60s.

But the math-only version of this decision misses what the research is telling us about how retirees actually behave.
For Washington State public employees, the DRS pension is already carrying part of that load. The Social Security question is partly about the size of the check and partly about how comfortable you’ll feel spending what you’ve saved.

A few things worth doing

If you’re sitting in this seat right now, a few practical thoughts.

Start with running the numbers in dollar terms instead of percentages. A “95% probability of success” doesn’t tell you much. Knowing your portfolio can sustainably support an extra $1,500 a month tells you something real.

It’s also worth looking at how much of your essential spending is covered by your guaranteed income (pension plus Social Security). When that covers most of your needs, the portfolio gets to be the part that funds the fun stuff.

Then there’s the Roth conversion piece. Social Security and IRA/DCP distributions are taxed differently at the federal level, and the order you turn each one on can matter more than people realize.

And finally, pay attention to how you actually feel about spending from your savings. If pulling money from your IRA/DCP makes you uncomfortable in a way that pension income doesn’t, that’s worth weighing in the decision. It’s information, not a flaw.

The textbook answer is a useful starting point. It’s just usually not where the conversation ends.

​Sources
1. Blanchett, D., & Finke, M. “Retirees Spend Lifetime Income, Not Savings.” Working Paper, December 30, 2024. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5076626
2. Guyton, J. T., & Klinger, W. J. “Decision Rules and Maximum Initial Withdrawal Rates.” Journal of Financial Planning, March 2006. https://www.financialplanningassociation.org/

-Seth Deal