For many high-net-worth individuals, the decision of when to claim Social Security is both a financial and emotional one. You’ve spent years building wealth and planning for retirement, and now you must face a critical question: do you begin claiming Social Security benefits early, or do you delay for a larger payout down the line?
The temptation to claim benefits as soon as possible is strong, offering an immediate infusion of income. However, delaying Social Security can significantly boost your monthly retirement benefit, providing more long-term financial security.
There are substantial benefits to delaying Social Security; however, you do have to weigh factors before making your decision.
The Benefits of Delaying Social Security
An integral part of a retirement strategy is the timing of claiming Social Security benefits, as delaying the start of your benefits can significantly boost your financial future.
These benefits, combined with inflation adjustments and tax tactics, can have a powerful impact on your retirement income. Delaying Social Security claims can boost your finances and allow other investments to grow.
Here are the key benefits of postponing your claim:
Delayed retirement credits
When you delay claiming Social Security beyond your full retirement age (FRA), you earn “delayed retirement credits.” Each year you wait past your FRA (up until age 70), your benefit increases by 8%. This means waiting can result in a significantly higher monthly payment—up to 32% more if your FRA is 66.
Higher lifetime payout
By delaying, you not only receive a higher monthly benefit but also maximize the total lifetime payout. While you’ll have fewer years to collect payments the longer you wait, the larger monthly amount may result in a higher total payout over time—depending on your life expectancy and financial circumstances—to support you when other assets may be dwindling in later years.
Spousal benefits maximization
Deferring Social Security benefits can also increase the amount your spouse will receive. If you are the higher-earning partner, your spouse can collect a benefit based on your earnings record. By delaying your claim, you ultimately maximize the survivor benefit your spouse will receive for greater financial security if you unexpectedly pass away.
When Delaying Might Not Be Worth It
While delaying Social Security benefits can be a smart strategy for many, there are certain circumstances where it may not be the best option. Here are some key situations to consider when waiting may not serve your best interests:
When your life expectancy is shorter
If you have a shorter life expectancy because of health issues or a family history of early mortality, delaying Social Security may not result in a higher overall lifetime payout. In such cases, claiming benefits earlier could provide financial support when you need it most, rather than waiting to receive larger payments in the future.
Calculating the break-even point (the age at which total benefits received from delaying outweigh the early benefits) is crucial in this scenario since the longer you wait, the less likely you are to benefit financially.
When you have to drain your savings or take on debt
If your retirement savings are insufficient to cover your expenses or if you must take on debt, delaying Social Security benefits can put additional financial strain on your retirement.
In these cases, claiming early might be a practical solution to bridging the gap between your current financial situation and future security. Social Security can provide an essential income stream, reducing the need to dip into investments or take on high-interest debt during retirement.
When you have a better investment opportunity
If you have a high-performing investment opportunity or a tax-efficient withdrawal strategy that can generate higher returns than delaying Social Security, it might make more sense to claim early and invest the funds elsewhere.
The 8% annual increase from delayed benefits is substantial, but it may not compare favorably to returns from other investment options—especially in a favorable market. Asking a financial advisor can help you weigh the potential investment returns versus the guaranteed growth from delaying Social Security.
Beneficial Timing
Delaying Social Security benefits can provide substantial financial advantages, such as higher monthly payouts, increased lifetime earnings, and maximized spousal benefits. However, it’s not the right strategy for everyone.
If your life expectancy is shorter, the need for immediate access to funds is urgent, or lucrative investment opportunities are readily available, claiming benefits earlier may be a wiser choice.
As with any important financial decision, it’s crucial to consider your unique circumstances and work with an expert to see the best path forward. A Certified Financial Planner® in Utah can help you navigate the complexities of Social Security, retirement income planning, and other strategies to secure your financial future.
If you’re ready to explore personalized financial strategies tailored to your goals, Tencap Wealth Coaching is here to help you. Discover why our advisory services are worth the fee and take the next step in securing a comfortable retirement.
Contact us today to learn more about how you can take control of your financial future!
The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Utah or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
Nick Carrigan
Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.
