• Home
• About Myself
• Ask A Question
• Blog
• Disclaimer Statement
• Privacy Policy

Should you Delay Collecting your Social Security Benefits?

For potential retirees who want to have the certainty of more guaranteed income in retirement, I have always recommended that should consider delaying the start of their Social Security Benefits (SSBs) (until age 70 if possible) to receive the maximum monthly payout. Before getting into why I think most retirees should delay starting their SSBs as long as possible. Let’s, first discuss some reasons that some people think it is better to start one’s benefits as early as possible. There are three main arguments why many people think waiting to collect SSBs is not the right move. They are:

• One common reason is that, since you do not know how long you will live, you should start collecting benefits right away to be sure you get as much in benefit payments as possible,
• Another viewpoint is some people think one should collect benefits early so you can keep more of your portfolio funds invested in the markets,
• A third big concern is that the social security program is going broke and everyone should start collecting benefits right away before the government reduces program benefits.

I will address each of these arguments in order.

Should You Start Collecting Social Security Early Because You may have a Shorter Life?

This answer to this question is…maybe. The answer should be based on your overall financial plan. The social security program is designed to payout benefits that total about the same lifetime amount if you live to the age of about 80-81 regardless of the age you start your benefits. So, of course, if you (and your spouse) are in poor health and are unlikely to reach age 80, then you certainly should start collecting social security benefits early. Also, many people need to start their social security benefits early as they need the income just to pay their basic living expenses in retirement. For these people, collecting early is a necessity, so one’s life expectancy is not a consideration. But for everyone in good health and who have enough other assets, they should consider delaying the start of benefits. I will discuss why later in this post.

Should you Collect Social Security early so you can keep more assets invested in the markets?

The answer to this question is the same as the second question…maybe. In this case the decision is more about how much risk you want to take. Keeping your assets invested in the stock market might provide more spendable income throughout your life. But it might not. It depends on how the markets perform and how comfortable you are with market volatility. Remember SSBs increase about 7%-7.5% per year from age 62 to age 67 and 8% per year from age 67 to age 70. Throw in a 3% annual inflation adjustment and you are looking at about 10% to 11% increase in benefits for each year you delay the start. And remember, this annual increase is guaranteed! This is a fairly high bar for the markets to consistently beat. But it is certainly possible. In my opinion, collecting SSBs early might make sense if you have enough other assets that SSBs are not central to funding your annual living expenses and one of your life goals is leaving the largest estate as possible to your heirs.

Should you worry about reduced Social Security Benefits because the Program is going Broke?

In a word: YES! We should all worry about the social security program going broke, but we need to keep this potential outcome in context. There is a social security Trust Fund that holds excess FICA payroll funds deducted from each person’s paychecks each year that were not used to pay SSBs in that year. These funds are not held in each person’s name like a bank account. The Trust fund assets are, essentially, held in one big account available to pay out to any social security beneficiary when needed.

Today, annual FICA payroll taxes are not enough to pay all the SSBs that are being paid out to beneficiaries. It is estimated that the current FICA taxes cover about 75% of all the current SSBs paid out. The balance of the current payments is made up by withdrawing the assets held in the Social Security Trust Fund. In 2025 the Government agency that estimates the value of the social security Trust fund reported, I believe, that the Trust Fund will be exhausted in 2034 (the estimated exhaustion date changes every year).

As we all know the US government has accumulated a very large public debt. As of this date, it is estimated to be about $38 trillion (including all government debts held in the various government Trust funds). In addition to this $38 trillion debt figure, the US government is on the hook for the payment of future benefits to taxpayers. This total of these future liabilities is, by some estimates, is as high as $100 trillion (for all entitlement programs) based on a 75-year projection. So, it is easy to understand why some people think it is better to collect your SSBs as early as possible before the program is bankrupt or is modified in some way.

But, to keep things in context, we have to ask; what assets are held in the social security Trust Fund? The answer is almost all the Trust Fund assets are invested in US Treasury securities of different maturities. The Treasuries owned by the social security Trust Fund are an asset of the Trust fund, but the obligation to pay these Treasuries is from another branch of the US government that has already spent the funds. In other words, the social security Trust fund assets are loans made to other branches of the US government that was used to buy war planes, pay government salaries, build highways, etc.

So, if you are worried about the social security program going broke, what you should really be worried about is the entire US government going broke. Since the assets in the Trust fund are the same type assets the US government owes to the Chinese government, Japanese Government, Wall Street firms, US citizens, and others. None of these Treasury debt owners have any priority over any other Treasury debt owner. The US government gets to decide who gets paid back and who does not. If the government does not have enough tax revenue or assets in the Trust fund to pay all future SSBs, then how will the government make good on all these future payments if they do not cut future benefits?

Before the social security program encounters this trouble, I do think it is likely there will be some changes to the social security program. What might some of the program changes be? The ones that are talked about the most are, increasing the wage threshold subject to the social security payroll tax, increasing the full retirement age, reducing the annual inflation adjustment formula and some call for reducing the benefits paid out to people with higher incomes. Some of these changes could happen in some form, but based on US political history, I think any long-term changes to the program will not affect the benefits paid out to anyone currently retired or close to retirement (e.g., people age 50 or older at the time of any changes).

However, I do think one thing that will happen is taxes will increase for higher income recipients, as the government will start “means-testing” SSBs. This does not mean that higher income recipients will have their SSBs reduced, but it does mean that the overall taxation on their income will increase.

Another thing I am certain that will happen is, due to the large government debt load, inflation will be much higher in the future. This will happen because, down the road, the government will need to sell a lot more Treasury debt than today and there will not be enough buyers to buy the all the Treasuries needed to fund the US government’s needs. This means the Federal Reserve, the lender of last resort, will be forced to buy the excess Treasuries by “creating more dollars.” This is why I think inflation will be higher in the future. In essence, this higher inflation will allow the government to not have to reduce SSBs in the near term. And this inflation is how the politicians prefer to handle the problem. It is, politically, much easier to inflate the benefits away rather than cutting actual SSBs.

But if SSBs are “inflation-adjusted every year, then future inflation should not be a problem, right? It is good to have the social security annual inflation adjustment, but I would not count on future benefit adjustments keeping up with the actual cost of living. Inflation adjustments also cost the government money.

The bottom line is I would not start collecting SSBs early just because you are afraid that future benefits will be cut. Of course, anything is possible, but I believe SSBs will not be cut; the bigger concern about future SSBs will be losing value due to higher inflation and higher taxes for many people. I believe all retirees will need to have a way to address future inflation risk. But this is a topic for a future post.

Before going further, let’s do a quick overview of how SSB payments are determined. SSBs are calculated based on the average of a worker’s highest 35 years of income. Past annual incomes are inflated to the present, so your benefit statement always reflects your benefit in current dollars. Determining someone’s monthly benefit is based on a formula that favors lower income beneficiaries. In other words, the benefit calculation does not increase proportionally for people with higher lifetime income.  For those who qualify, your full benefit is available at between ages 66 or 67, which is referred to as your Full Retirement Age (FRA). This is determined by your birth date. For most people retiring today, their FRA is 67 (birthdates in 1960 or later), so we will use age 67 as the FRA for purposes of this discussion.

You are allowed to start collecting benefits as early as age 62, but your SSB is a discounted amount below your FRA benefit. And this discount remains for the rest of your life. The early claiming discount is calculated a follow:

• From age 64 to age 67, for every month you start your benefits early (before age 67), your benefits are discounted by 0.5556 of 1%. So, if someone starts collecting their social security benefits at age 64 their benefits would be discounted 20% (0.5556 x 36 months = 20) from their FRA benefits (age 67),
• For every month you start your benefits between ages 62 and 64, your benefits are discounted an additional 5/12 of 1%. So, starting one’s benefits at age 62 would mean a total discount of 30% below your FRA benefits.

You can also delay collecting your benefits beyond your FRA until age 70 and receive a higher monthly benefit. Your benefit will increase 8% for each full year you delay starting benefits past your FRA. So, delaying the start of SSBs until age 70 would increase your monthly benefit by 24% above your FRA (age 67) benefit.

Should You Delay Collecting your Social Security Benefits?

For the average person or couple, the main reason to delay collecting SSBs is to help offset the biggest risk in retirement, which is longevity risk. I believe this reason alone is enough to delay the start of SSBs. When people talk about SSBs in terms of the number of years to reach the “Breakeven” point if they delay starting their SSBs, this is an indication that they view SSBs as an investment. I think this is the wrong way to view this benefit. SSBs should be viewed as insurance policy. In this case you are insuring against the risk of outliving your assets.

Studies show that many people underestimate their own life expectancy. Men and women in good health at age 65 have a life expectancy of 84 and 87 respectively. Both these ages are already beyond the “breakeven” age of 80-81. More importantly, people currently near age 65 have about a 25% chance that you will live past age 90. A lower SSB means many more years of larger portfolio withdrawals later in life. Do you want to take the 25% chance that you might exhaust your other assets at age 90? This is the longevity risk.

For most retired couples, the best course of action is for the spouse with the higher social security benefit to wait until age 70 to start their benefits. The lower paid spouse can start benefits at age 62. Delaying the higher spousal benefit until age 70 is best because the social security program, after the death of the first spouse, allows the surviving spouse to receive the higher of the two benefits. So, this strategy ensures the surviving spouse has the highest benefit possible. This strategy is especially important if one of the spouses SSBs is significantly higher than the other.

Another reason to have the largest SSB as possible is because of inflation. Unless you are fortunate enough to have a government pension of some kind, SSBs are the only “guaranteed” income source in retirement that has regular inflation adjustments. So, it makes sense to have this income source be as large as possible to help combat future inflation.

SSBs also have special tax treatment; both at the federal and state level. Benefits are tax-free below a certain income level. At a higher income level only 50% of one’s benefits are taxable. And regardless of how high your annual income is, no more than 85% of your SSBs are taxable (although I could see this special tax treatment being reduced or eliminated in the future). The table below shows the income levels when SSBs become taxable.

Total Income Ranges for Social Security Benefits Taxation

Additionally, the formula to determine amount of SSBs that are taxed is also favorable:

Taxable SSBs = (50% of SSBs) + (all other non-social security income)

An example of how the formula above works. A married couple has the following retirement income:

SSBs = $50,000

Pension Income and Interest income total = $35,000

Total Income = $85,000

Taxable SSBs = (50% x $50,000 + $35,000) = $60,000

First $32,000 = $0 taxable

Next $12,000 = $6,00 taxable

Next $!6,000 = $13,600 taxable

Total SSBs taxable = $19,600

Total taxable income = $19,600 + $35,000 = $54,600

In the example above, only $19,600 or just 39% of the couple’s SSBs are taxable. This SSB taxable formula where only 50% of the SSB is included means, the higher the percentage of total income is from SSBs, the lower the total taxes for that income level.

Additionally, in 2026, forty-one US states do not include SSBs in their state taxable income. Most of the other nine states have deductions for seniors high enough that most seniors in these states effectively do not pay taxes on their SSBs.

Another reason for delaying the start of SSBs is it allows people to use the intervening years between retirement and the start of SSBs to make several Roth IRA conversions of Traditional IRA funds while they are in a lower tax bracket. This is especially beneficial if one has a large traditional IRA or 401(k) balance that will lead to large taxable Required Minimum Distributions (RMDs) in future years. Roth IRA conversions can really help reduce your lifetime tax obligations. However, Roth IRA conversions are something that should be planned out in advance with your financial advisor.

To summarize, increased longevity risk protection, some inflation protection, and preferential tax treatment are the main reasons one should consider delaying the start of their SSBs as long as possible. However, the social security claiming decision is one of the biggest retirement decisions a person will make and once made (with a few exceptions), the decision is irreversible. You should talk to your financial advisor about your specific situation.

Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.