Imagine you are at a delicate point in your life. You and your spouse are 66, poised to retire and take Social Security. Your combined benefits will be $32,000 a year. You also will have another $32,000 of income from other sources.

Then your treasured aunt Agnes dies. She leaves you $32,000— a full year of Social Security benefits. What do you do?

The choice seems simple. Add it to your retirement savings and it will increase your income. The kids will inherit the principal.

The other option is to defer taking benefits for a year. That will also increase your income. Better still, the income will be inflation-adjusted for life. The downside: no money for the kids. Which do you choose?

Reader letters tell me most people will invest the money. They want to leave money for the kids. They are sure they will die young, not old. The idea of income that dies when they do, with nothing left behind, isn’t attractive.

But what if you could do both? It turns out that deferring Social Security benefits is a way to have your cake and eat it too. You can have a higher income, pay less in taxes, and leave more money behind. How can that be? Read on.

Taxes are crazy for seniors. The problem is the tax on Social Security benefits and how it is experienced. The key fact is that additional income from savings is taxed at higher rates than identical increases in Social Security benefits.

Let me walk you through an example.

Invest the $32,000 in a 30-year U.S. Treasury obligation and you’ll get a yield of 3.53 percent. That's according to the Bloomberg website. Your pre-tax interest income would be $1,129 a year. You get the income; your kids get the bond when you die.

But the income is subject to the income tax. It will be higher than you expect due to the taxation of Social Security benefits. For instance, the average tax rate on increases in other income from $32,000 to $40,000 is 26.44 percent. So you’ll lose about $296 to taxes. That leaves $833 a year to spend.

But if you use the $32,000 to defer taking Social Security benefits for a year you’ll get a much bigger increase in income— 8 percent. That’s an income increase of $2,560, more than twice the increase from investing the money. The increase will also be inflation-adjusted. So if inflation runs at 2 percent over the next 25 years you’ll be receiving $4,200 a year in the 25th year.

But it gets better. Increases in Social Security benefits pay much lower tax rates than increases in other income. In this particular example, the average tax rate on an increase in benefits between $32,000 and $40,000 is 6.49 percent. So the tax would be only $166, leaving $2,394 to spend. That's three times what you would have to spend by investing the money.

At a 2 percent inflation rate, that income would rise to $3,928 in 25 years. That's nearly five times the fixed $833 left from the Treasury investment. So it appears that you’ve got lots more to spend. The only cost: the kids don’t get to inherit the $32,000 bond.

But you can fix that.

Just save some of the extra $1,561 a year you’ll have over the $833 from investing. If you save $1,200 a year in a tax-efficient U.S. Total Stock Market ETF, it might grow at 8 percent, compounded. It could become about $54,900 in 20 years or $87,700 in 30. More for your kids.

Meanwhile the $1,194 a year you have left to spend would grow to $3,000 in 25 years. Presto! You’re better off, now and every year you live. And the kids are better off when you die.

This isn’t a trick. It’s the mess our elected leaders call a tax system. These basic relationships apply for seniors with Social Security benefits and other income in the range of $48,000 and $96,000. That's a lot of people most would call middle class. (Precise calculations from different starting incomes will vary in result. But the basic principle applies throughout this income range.)

And the best news?

Aunt Agnes doesn’t have to die! Just spend part of your savings to support a year of Social Security deferral.