Rethinking When to Take Social Security

I’ve been skeptical about traditional advice on when to take Social Security for a while. Most financial advisors and calculators push you to delay claiming benefits until you’re 70, instead of taking it early, or at your full retirement age, because every year you delay taking it until you’re 70 your benefit increases by 8%. Find out your full retirement age here.

Social Security

The argument is that you can’t beat the 8% return that comes with delaying. The math typically supports this by showing that the largest lifetime benefit goes to those who wait. You’re going to give up a lot of monthly checks by waiting until 70, but the larger payments allow you to breakeven by your late 70’s or early 80’s.

Yes, But Don’t Forget Investment Returns

What’s overlooked with this recommendation on when to take Social Security is a return on the early benefits.

Let’s say you take it early and invest the money, or withdraw less from a portfolio.

You need to apply a return to the early benefits.

And when you do, the math changes.

Delaying your payments takes longer to work in your favor, if it does at all.

It’s hard to find this feature in most Social Security online calculators.

However, this article breaks down the benefit of applying a return to your early Social Security payments. It found that even a 2% return applied to the early payments can push out the breakeven age to 84, and a 7% return on the early payments doesn’t allow the larger delayed payments to ever catch up. I’ve seen the same thing when doing the analysis myself.

Bottom Line

Run the numbers yourself, or ask your wealth manager to do so.

Don’t forget to apply a reasonable return to the early payments.

And also understand the drawbacks of claiming early, some of which are highlighted here. Key among them is that you permanently lock in a lower payment, and taking early benefits while still working can cause those Social Security benefits to be partially withheld until you reach your full retirement age.

Suggested Further Reading 

Your Safe Retirement Withdrawal Rate – How much money do you need to retire is a popular question? What’s my safe retirement withdrawal rate is a better one. This post looks at the famous 4% rule and whether it still applies.

Looking to Maximize Social Security?

Build Your Plan Now