When to Claim Social Security: The Strategy That Could Change Your Retirement
Saoirse had told herself she would figure out Social Security when the time came.
At age 62, she was offered an early retirement package. The terms were reasonable. But with a paycheck no longer coming in, claiming Social Security felt like the natural next step. Her first instinct was to claim right away. The benefit felt like found money. She had earned it over 35 years of working. Why wait?
“The Social Security decision is one of the few parts of retirement planning where the research is relatively straightforward,” says Rafe Klein, Senior Vice President, Investments at David Lerner Associates.
“For most people in reasonable health with financial flexibility to wait, delaying can produce more lifetime income in the long run. Getting that decision right, as part of a broader income strategy, is an important conversation we have with clients approaching retirement.”
The decision to claim, made in a single afternoon, would affect Saoirse’s monthly income for the rest of her life. And for most people in good health, the data on when to claim is clearer than they may realize.
What Social Security Research Actually Shows
Many experts agree that waiting until age 70 to claim Social Security can produce the best long-term outcome. So, why are the vast majority of Americans not actually doing it?
The National Bureau of Economic Research found that only about 10% of retirees actually delay to 70. Even more recently, an AARP poll found that more and more people are claiming early.
Anxiety about Social Security’s future is changing the way Americans approach one of retirement’s most consequential decisions. But claiming before full retirement age, typically age 67 for most approaching the claiming window, comes with a permanent reduction in monthly benefits that can follow a retiree for the rest of their life.
Even the Social Security Administration acknowledges that retirement may be longer than you expect, and that many people will live beyond the average lifespan. For a retiree who claims early out of fear and then lives to age 88 or 92, that permanently reduced benefit becomes a very long-term consequence of a decision made in a moment of haste.
The gap between when most people claim and when the research suggests can be one of the largest and most persistent planning oversights for retirement.
The Mechanisms at Play: Why Delaying Pays
The Social Security benefit system is built around a core incentive for delay. Currently claiming at age 62, the earliest eligible age, permanently reduces your monthly benefit to roughly 70% of what your full retirement age benefit would be.
Waiting until age 70, the maximum delay year, increases that same benefit by approximately 8% per year beyond full retirement age. That means a retiree who waits from age 67 to 70 receives a benefit approximately 24% higher. Over a 20-year retirement, that difference can add up to tens of thousands of dollars.
Why People Claim Early Anyway
If waiting often produces better long-term numbers for retirees, what the reason behind claiming so early? The most common reason is immediate financial need.
Retirement, a job loss, or a health event forces the decision before delayed retirement credits can kick in. For retirees in this position, earlier claiming can be genuinely necessary, and the right choice given their circumstances.
Another common reason is a misunderstanding of the break-even math. Many people calculate how long it would take to recoup the benefits they forgo and conclude that it’s too far off to justify delay.
But this calculation misses the inflation-protection and longevity insurance that delayed claiming provides. Social Security benefits are adjusted annually through cost-of-living adjustments. A larger Social Security benefit is not just more monthly income. It is an inflation-indexed income stream that cannot be outlived, administered by the federal government.
Building Social Security into an Income Plan
The Social Security claiming decision should not be made in isolation. It is one component of a broader retirement income strategy that includes investment income, portfolio withdrawal rates, tax planning, and healthcare cost projections.
For retirees with sufficient resources to bridge the gap between early retirement and age 70 without claiming, the delay strategy is often one of the highest-return decisions available. The 8% annual increase for delay is defined by federal law, inflation-adjusted, and not subject to market risk.
In a planning environment where reliable income is the goal, that combination of characteristics is difficult to replicate elsewhere in a portfolio.
Saoirse decided not to claim at age 62. With a clear picture of the numbers and a plan to cover her living expenses from her portfolio during the bridge period, she chose to wait. The decision was not made in an afternoon after all. It was made carefully, with a full understanding of what it meant for the rest of her retirement.
Material contained in this article is provided for information purposes only. It is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. These materials are provided for general information and educational purposes, based on publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. The subject of this article is fictitious and created for illustrative purposes only. It is based on events of a similar nature and should not be interpreted as a direct depiction of any specific individual, organization, or incident. Any resemblance to actual persons, living or deceased, or actual events is purely coincidental. David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s circumstances. Each taxpayer should seek independent advice from a tax professional based on his or her circumstances.