Friday, June 23, 2017

Delaying Social Security Claims (or Not)

Should all retirees delay claiming Social Security benefits?

That's the question I was asked on Dan Farnsworth's Boomer Income Ideas website this past week. Since this a common question and Social Security retirement benefit claiming is so complicated, I'll share my thoughts on the topic with you, as well. (Dan's interview is scheduled for release in July and I'll post a link when it is available.)

First, a very quick review of how delaying Social Security benefits works. Workers can claim retirement benefits as early as age 62 but for every year they delay claiming they increase their benefits by about 8%. There is no additional benefit to claiming after age 70. Survivors benefits may also be affected by the age at which retirement benefits were claimed by the deceased spouse, so if hubby claims at an early age his widow may pay the price.

Households may receive a larger lifetime benefit by delaying claiming if one or both spouses live a very long time, say, into their nineties. If neither does, claiming earlier can provide a larger lifetime benefit. If the retiree lives to somewhere in the neighborhood of median life expectancy the claiming age doesn't make a huge difference but that isn't something we can plan on.

The easy answer to Dan's question is no, not everyone should delay claiming, easy because there are precious few meaningful retirement finance strategies that every retiree should implement. Off the top of my head I can think of a few retirement scenarios in which retirees might not want to delay claiming, though there are no doubt more:
  • Retirees who have over-saved
  • Retirees who need the income right away
  • Lower-earning spouses
  • Retirees in poor health
  • Retirees convinced that Social Security is going away
I sometimes have readers contact me for planning help who have saved $10 million or more for retirement. (I often wonder exactly what retirement finance problem these readers would have me solve.) It really doesn't matter a bit when they claim Social Security benefits, or even if they claim.

The risk for people who have "over-saved" is that some people aren't as over-saved as they believe. I've had readers ask if they can retire at age 50 with a million dollars. (They can't.) Households that have saved two or three million dollars aren't totally free of longevity risk and should they deplete their savings they may eventually regret having claimed benefits early. In general, though, retirees who saved a ton of money don't need to worry much about delaying Social Security benefits. The benefits won't make much difference either way.

At the other extreme, a large majority of Americans will have very little in the way of retirement savings. About half will have almost no savings. These retirees may need the income as soon as they retire and will not be able to postpone claiming.


The exception to this scenario is households with little or no savings who can delay claiming Social Security benefits by working longer. In addition to increasing Social Security benefits, working longer provides a number of benefits for the under-saver. Every additional year worked reduces the length – and thereby the cost – of retirement. It provides an opportunity to increase retirement savings. It may provide another year of company-paid health insurance.

Couples analyzing their Social Security benefits face an even more complex task. I used to analyze my household's options and it found 13,651 claiming scenarios. Often, both spouses claiming at the maximum age does not generate maximum lifetime benefits if one or both live a long life.

It is often most beneficial for the lower-earning spouse not to delay claiming past full retirement age (FRA, about 66 years for those claiming benefits today) and for the higher-earning spouse to delay claiming to age 70. It is typically beneficial for the lower-earning spouse to wait until FRA, however, and not to claim at age 62.

(For the record, I plan to claim at age 70 and my wife claimed at FRA.)

Retirees who have good reason to believe they will not live beyond median life expectancy for a healthy person of their age and gender might consider claiming benefits earlier. Like retirees on the borderline of "over-saved", however, guessing how long you will live is risky.

Mortality tables tell us how long a large group of randomly selected people like us is likely to live but they don't tell us, for example, how long Dirk will live. All American males my age might on average live another 20 years, but I may die tomorrow or in 35 years. Best to plan on the long side.

My son tells me that students in med school are taught that doctors are notoriously bad at predicting when patients will die unless death is imminent. In 2001, the FDA approved a drug called Gleevec that resulted in "converting a fatal cancer into a manageable chronic condition." If you expect a short retirement but experience a long one, you may well regret having claimed Social Security benefits early.

Delaying Social Security benefits is like saving some acorns for a long winter.
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Lastly, if you're someone who fears that your Social Security benefits will one day be taken away and that fear causes you significant distress, I think you should claim early. As I wrote in What Makes Us Happy, the ultimate goal of a retirement plan is to make you feel safe and secure. If the fear of losing your benefits before you claim them outweighs your fear of lower income in your nineties, claim early.

These are a few examples of retirees who might not want to delay claiming Social Security retirement benefits. I don't believe the list is exhaustive, only that it shows that delaying claiming isn't always the right choice for everyone, but again, hardly any retirement strategy is.

All things considered, I still believe that most retirees should delay claiming Social Security benefits for as long as they are comfortable doing so. Delaying claiming is simply transferring some income from early in retirement until late in retirement for the benefit of those of us who do enjoy a very long life. It is the cheapest longevity insurance you can buy.

Delaying claiming your benefits isn't unlike a squirrel eating some acorns in the fall and hiding some for a long winter. You have to strike a balance between how much you eat today and how much you will have to eat if the winter is exceptionally long.

Unless you've saved $10 million dollars, of course, in which case you can eat whatever you want whenever you feel like it.


Boomer Income Ideas

Full Retirement Age,

Gleevec and CML.

Social Security Made Simple, Mike Piper.


  1. "I've had readers ask if they can retire at age 50 with a million dollars. (They can't.)" - I retired at 48 with just under a million - and right at the top of the markets in 2000.
    Seventeen years later and still going strong - and happy that I didn't wait.

  2. Ha! Congrats! I have a brother-in-law who retired in Ecuador in his fifties with nothing saved. Lives on Social Security benefits. So, it can be done. . .

    But I wouldn't.

    Thanks for commenting!

  3. good article. One reason for the higher earner to delay even if he/she has a nice pension is that often the pension is reduced by 1/2 when he/she dies. By delaying SS till age 70 that provides the surviving spouse with higher income added to a lower pension.

  4. We will be turning 70 in about 2013, so we have a ways to go before needing to make actual decisions on Social Security, but it is never too early to plan......

    The conventional wisdom is that politicians will not act to cut Social Security but the current rush to pass the AHCA with large cuts in benefits to fund a tax cut for the wealthy makes it clear that there is a political push to dismantle major safety net components, so I think the political risk is very real. Our current planning assumes what I think is a reasonable worst case where the Trust Fund is allowed to go to zero with no additional funding so that the benefits are reduced about 21% across the board.

    In this scenario, we would still delay my benefits until 70 but potentially start claiming my spouses benefits at retirement, possibly several years before FRA. We will re-evaluate the political risk in a few years closer to retirement.

    1. I assume you meant 2023. Your approach sounds reasonable to me but a few points:

      No source of retirement income is risk-free, including Social Security benefits.

      Assuming benefits may be reduced is a sound conservative estimate. (I think it unlikely they will go away, but it is purely a political issue since there are numerous ways to fix the problem financially.)

      Most households can't get by without Social Security retirement benefits and avoid poverty. That's what it's meant to do. They won't be able to maintain their standard of living with 100% of benefits so assuming say, 80% of benefits, won't make the plan work.

      The trust fund is simply a place to store a surplus. Social Security is primarily "pay-as-you-go."

      Appreciate your thoughts!

    2. I meant to write 2030, not 2013 so basically a dozen years.

  5. Great post Dirk - as always.

    I'd add a caveat to the retiree in poor health claiming benefits early. If there is a spouse who may receive a higher SURVIVOR spousal benefit (maxes out when spouse reaches their own full retirement age defined by SS for their year group), relative to their own SS benefit, then the poor health retiree may wish to delay taking their benefit (to as late as their age 70) in order to maximize the SURVIVOR benefit to their spouse.

    Yes, the poor-health-worker wouldn't receive as much in benefits by delaying by definition because of poorer health, but here the spouse as survivor is an important consideration as well.

    As will rules of thumbs, there are exception to the rules ... and this is an important exception to run the numbers and consider.

    1. Larry, you make an excellent point. I was referring to a single worker but generally a married claimant has a more complicated decision.

      Typically, when a worker dies with a surviving spouse and both have claimed then the larger benefit becomes the survivor benefit and the smaller benefit goes away. If neither spouse had claimed then the survivors benefit will typically be the deceased spouse's FRA benefit.

      I say "typically" because there are several qualifiers including which spouse is the higher earner, which of the two have claimed, the survivor's claiming age and others.

      The cautionary tale is the husband who claims at age 62, then dies early and leaves a widow to claim the smaller survivors benefit for another 20 years.

      The bottom line is that while it might make sense for a worker with a poor prognosis to claim early a married worker must also consider survivors benefits. That's why I recommend professional help with the claiming decision or using a tool like

      Let me reiterate that these are simply examples of when claiming early might make sense but I believe that more often than not workers should delay claiming as long as they can comfortably afford to.

      Thanks for that important caveat!

  6. My vote is to defer Social Security until it is really needed. I have had the opportunity to consider total income levels (Social Security + Employer provided) 30 or so years into retirement in comparison to total income the first year of retirement. For many higher income folks the first year of retirement Social Security was on the order of 25% to 35% of the total income with Employer provided income the lion's share. After 30 years of inflation that relationship inverted because it is rare employer benefits are increased to fully replace "earnings power" lost to inflation.

    The original intent was Social Security would protect against loss of income.

  7. Deciding when to claim Social Security is a tradeoff between current liquidity and future mortality credit. Over-savers (say 65 with $3 million cash) have tons of liquidity. Claiming Social Security before 70 would not change their lifestyles a bit. However, the extra mortality credit from delaying would be more valuable to them as the wealthy tends to live long. What do you think, Dirk?

    1. Isaac, I agree with your main point, though I see lots of clients with $3M who still need that Social Security check.

      I would add that delaying is more valuable for anyone likely to live a long time, for example, anyone whose family has a genetic tendency toward long life, wealthy or not.

      Thanks for writing!

  8. My wife and I will retire in 4 or five years at about 66. We will each have small pensions and access to a little investment income. Social Security will be the 4th revenue stream. A financial adviser really wants us to wait until 70 to claim Social Security, but I'm concerned that we will have to erode our investments during that 4 or 5 year wait. Trying to forecast what that will cost us in lost investment income vs the higher Social Security benefit when claimed later is like betting on the pig races at the fair. An educated guess, a WAG, a stab in the dark. It doesn't help with the confidence and security we seek in retirement.

    1. Chris, thanks for writing.

      I suspect you're not getting a satisfying answer because you're asking the wrong question. If you feel like a Social Security-claiming decision is like betting on pigs, then I'm pretty sure you're looking at the wrong bet.

      Because I get this question constantly (twice in the past 3 days, in fact), I'm going to write a longer response in my next post at the Retirement Cafe on Friday.

      I hope you'll drop by.