The Issues with Trying to Maximize Social Security

A lot of planning effort focuses on maximizing Social Security. One website claims there are 567 ways to claim you Social Security benefits. Maximizing Social Security generally requires delaying benefits until you are older. Each year you wait, the more you receive.

Determining Factors

The eventual success of maximizing your Social Security hinges on these two things:

  • First, will you live long enough for it to work?
  • Secondly, how will delaying your benefits impact your retirement savings?

Living Long Enough…

Each year you delay filing for benefits means you receive a larger monthly income. However, it also means you don’t receive any Social Security during those months. Over time this can be a significant amount. To illustrate our point, consider the following example of John and Jane Doe.

John and Jane Doe

John and Jane Doe were born in 1960.  Social Security estimates they will receive $2,000 per month at full retirement age (age 67).  John and Jane are going to retire at age 65, and they want to determine if they should start their benefits now or wait until they are 67.  In addition, they also wonder if they should wait until age 70 to claim their benefits.

65 vs 67

Full retirement age for both spouses is 67 years old. Because they are retiring early, they receive reduced benefits at age 65. The monthly income at age 67 is larger. However, they will also not receive income for 24 months. They could receive greater lifetime benefits by delaying their Social Security benefits. But this only works if they live long enough. In this situation, they have to live to be older than 83 years old for this strategy to make sense.

65 vs 70

The decision to delay benefits to age 70 must consider the same factors. Age 70 provides the largest possible income payment. However, not receiving benefits for 60 months is significant. The “break-even” point for this decision is age 85.  What are the chances either reaches 85?  

This illustration represents a simplified and hypothetical example.  Your situation will differ, and should be evaluated based on all factors involved.

The Impact on Your Retirement Savings

This decision reaches beyond how long you need to live to break even. It also needs to include a review of how it will impact your retirement savings. Most people rely on Social Security and their savings to produce retirement income. Delaying Social Security benefits means you have to rely more on your nest egg. This also has some pitfalls.
The biggest risk retirees face with their nest egg is overspending. Taking too much income from your savings increases the chances you will run out of money. Raising your withdrawal rate to replace Social Security increases this risk.
In addition, your retirement savings can last beyond your lifetime. Social Security does not. Are greater Social Security benefits more important that your potential legacy?

Is maximizing Social Security worth it?

You can compute the optimal solution to the Social Security equation. However, you cannot isolate it from the other unpredictable parts of life. Sometimes, trying to be precise in an imperfect world leads to poor decisions.
You need to understand how delaying Social Security improves your benefits. In addition, you need to comprehend how it also impacts survivor benefits. However, you also need to see how it impacts the other financial aspects of your life. In the end, Social Security is only part of the picture. You should view it within the proper context.

Do You Have Any Questions?

We are happy to answer any questions you have about Social Security and Retirement Income.  Simply type in your questions  in the form to the right, and we will get back to you with an answer as soon as we can.


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