For many retirees, delaying Social Security seems like a no-brainer. Wait a few extra years, and you’re rewarded with an 8% annual increase in your benefit. Sounds like a great deal, right?
Not so fast.
While delaying Social Security can be the right move for some people, the traditional logic behind it often leaves out some critical factors—factors that can dramatically change the outcome of your overall retirement plan. In fact, for many, delaying Social Security might actually hurt their financial future rather than help it.
Let’s take a closer look at why the common approach to Social Security timing can be flawed, and how you should really think about this important decision.
The Faulty Logic Behind Delaying Social Security
When you delay Social Security past your full retirement age, you earn what are called “delayed retirement credits.” This increases your benefit by 8% for each year you wait, up until age 70. At first glance, many people assume this means they’re earning an 8% return on their money by waiting. But that’s not an accurate comparison.
Imagine if I gave you two options:
- Option A: Receive $100 from me this year and $100 again next year.
- Option B: Receive nothing this year, but $200 next year.
At first glance, it seems you’re getting a better deal by waiting—but in reality, you’re simply delaying the same total amount over a different time frame. That’s similar to what happens when you delay Social Security. Yes, your benefit grows, but you’re also shortening the amount of time you receive it.
The real question becomes: When do you break even? At what point does the larger monthly payment outweigh the years of missed smaller payments?
Opportunity Cost: The Hidden Factor Most People Miss
Most people only consider the Social Security benefit itself when making this decision. But there’s a major piece they’re missing: opportunity cost.
If you’re retired and delaying your benefit, you still need income to live on. That income has to come from somewhere—typically, your 401(k), IRA, or other investment accounts. Every dollar you withdraw to cover living expenses is a dollar no longer invested and growing for you.
In other words, by waiting to collect Social Security, you’re forcing your portfolio to do more heavy lifting. And depending on how your investments perform, this tradeoff might not be worth it.
A Real-Life Example: Tina’s Retirement Plan
Let’s look at a real-world case study. Tina is 62 years old and just retired with $1 million saved. She wants to spend $6,000 per month in retirement.
If Tina collects Social Security at 67 (her full retirement age), she’ll receive $3,000 per month. If she waits until 70, her benefit would increase by 8% per year, bringing it up to a little over $3,700 per month. Collecting at 62, of course, would mean a reduced monthly benefit.
Using a traditional Social Security break-even analysis, Tina would break even around age 76 if she delayed until 67. If she delayed until 70, the break-even point moves closer to age 80.
Based purely on that analysis, most advisors would recommend Tina delay her benefits if she expects to live past these ages.
But when we take a holistic view—considering her portfolio, withdrawal needs, and investment returns—the picture changes.
Why Portfolio Returns Matter
Assuming Tina’s investments earn 7% per year, collecting Social Security at 62 actually leaves her better off for much of her retirement.
By collecting earlier, Tina doesn’t have to withdraw as much from her investment accounts. This leaves more money invested and compounding over time. Even though her Social Security checks are smaller, her overall net worth (Social Security income + portfolio value) is higher for many years compared to delaying benefits.
And if Tina’s portfolio earns an even higher return, like 9%, the advantage of claiming Social Security early becomes even greater. The more growth you can expect from your investments, the more valuable it is to leave your portfolio intact as long as possible.
On the flip side, if Tina’s investments only earn 5% per year, delaying Social Security starts to look more favorable. Lower expected returns make it less costly to draw down the portfolio while waiting for a higher Social Security benefit.
The bottom line: your decision about when to claim Social Security should factor in your portfolio’s expected return—not just your age or life expectancy.
It’s About Your Whole Plan, Not Just One Piece
Too often, Social Security decisions are made in isolation. People focus only on maximizing their benefit without considering how it fits into the bigger picture of their retirement income strategy.
Here’s what really matters:
- Portfolio drawdown rates: How much pressure are you putting on your investments by delaying Social Security?
- Expected investment returns: Higher expected returns make preserving portfolio assets more valuable.
- Tax planning opportunities: Taking Social Security early or late can impact your ability to do Roth conversions or minimize taxable income.
- Spousal benefits: Your decision can also affect the benefit amount available to your spouse, especially for survivor benefits.
- Longevity considerations: How long do you realistically expect to live, based on your health and family history?
When you zoom out and consider all these factors together, you can make a much more informed, confident decision.
The Takeaway
Delaying Social Security isn’t always the smartest move—and it’s definitely not the same as earning an 8% investment return.
The better question to ask is: How does Social Security fit into my overall retirement income plan?
By thinking about Social Security as just one piece of a larger puzzle, and by factoring in your investment strategy, you can build a plan that helps you retire with confidence—not just with a bigger Social Security check.