A Case for Claiming Social Security Early

Over a year ago I wrote a post titled Why Taking Social Security Early Might Be the Best Option.

It was me wondering if taking Social Security (SS) early was a good move — despite the conventional wisdom that the longer you can delay, the better.

Then I did Retirement Interview 26 where the interviewee said this:

Regarding Social Security, here is what we did. Many experts suggest that if you can wait until age 70 to begin payments, you should do so. I’m afraid our decision flew in the face of this conventional wisdom.

In the case of my wife and I, we do not need to spend our Social Security payments, so we planned to invest the full amount. To determine the best claiming age under this “claim and invest” strategy, I put together a detailed spreadsheet that modeled how social security payments invested monthly for both my wife and I would accumulate until age 95 under four claiming scenarios:

(1) both of us claim at 62
(2) both of us claim at FRA
(3) both of us claim at 70
(4) my wife claims and 62 and me at 70.

For each scenario, I did a sensitivity analysis of how the accumulations would change under various inflation and investment return assumptions. The spreadsheet model included the effects of income taxes and the compounding effect of investment returns and inflation, which other breakeven calculations typically ignore.

Bottom line, I found that if we achieved an average yearly after tax investment return of 5% or more, then the scenario of both of us claiming at age 62 was the clear winner. If we assumed a more modest investment return of 2% after tax, then the scenario of both claiming at age 70 was the winner. Even in this case, however, the both claim at 62 scenario had the higher accumulated balance until around age 85. After seeing the results of this analysis, the both claim at 62 option was looking pretty good to me.

Hmmm. This was something I wanted to know more about.

So I emailed him the following:

You don’t happen to have (or would be willing to do) a write up of your Social Security analysis, do you? I think many people would find that enlightening and interesting.

He said he would write something up and that is what follows. I think you’ll be quite intrigued with it, especially if SS is “extra” (non-essential) income for you.

Here we go…


For most retirees, Social Security is an indispensable part of their income. The retirement literature is full of advice regarding the best age at which to claim Social Security retirement benefits. In large measure, the advice boils down to the following:

  • If you have a below average life expectancy or if you urgently need the money, then claim at age 62 when you are first eligible;
  • Otherwise, wait until your Full Retirement Age (FRA) or better yet age 70, at which point your monthly benefit will be substantially larger than if you had claimed earlier.

No doubt this is solid advice for the majority or retirees, who rely on Social Security to cover their expenses. However, what about retirees who already have their expenses fully funded from other sources, like defined benefit pensions, 401Ks and IRAs, investment income, etc.? These retirees will likely claim Social Security retirement benefits if eligible, but they won’t spend their monthly payments. Instead they will invest them, and ultimately distribute the proceeds to heirs or charities as part of an estate legacy.

Retirees with a long-life expectancy who follow this “claim and invest” strategy could clearly wait until age 70 to start their Social Security benefit as suggested by conventional wisdom, but would this necessarily be the optimal path?

That was the key question my wife and I faced recently in our deliberations about when to claim Social Security retirement benefits. For context, I retired about 6 years ago, in my mid 50’s. My wife is the same age as I am, and is also retired. We have both qualified for Social Security retirement benefits based on our extensive work records.

As we approached age 62, I began investigating what our best claiming age would be. We are both in good health and have a history of longevity in our families. In addition, we don’t need the Social Security payments to fund our lifestyle. We have 401K and IRA accounts worth about $2.5M, taxable brokerage accounts worth about $12M, a house and other tangible property worth about $0.7M, and we draw defined benefit pensions of about $80K per year.

Given that we have no debt and lead a relatively modest lifestyle, our investments and pensions provide more than enough income to fund our living expenses. As such, our plan was to invest our Social Security payments, with the intention of adding them to our eventual estate legacy.

Regarding our optimal claiming age, my starting assumption was that we would both wait until age 70, per conventional wisdom. However, I am not the type to blindly follow guidance, so I decided to conduct an analysis to determine what claiming age would be best for our specific situation.

Reviewing the Options

The first step in my analysis was to identify alternative claiming scenarios. I came up with four scenarios, which specify different ages that might make sense for us to commence our Social Security retirement benefits:

  • Both of us claim at 62: In this scenario my wife and I both claim at age 62, which is the earliest possible age for us to start receiving Social Security retirement benefits. I think of this as the “take the money and run” scenario. From the viewpoint of a claim and invest strategy, this scenario provides the longest period of time for the compounding of investment returns. In addition, if future Social Security reforms were to cut or eliminate our monthly benefits, this scenario would allow us to collect as much as possible before those potential cuts would be enacted. Our combined benefit if we started payments at age 62 would be $3,663/month, which would be significantly less than if we waited until a later age to claim.
  • Both of us claim at Full Retirement Age (FRA): FRA is the age at which we would be eligible for our full Social Security retirement benefit. For both my wife and me, our FRA is 66 years and 8 months. Our combined benefit if we started payments at FRA would be $5,082/month.
  • Both of us claim at 70: Our combined benefit if we started Social Security retirement payments at age 70 would be $6,437/month. This would be the maximum combined monthly benefit possible for us. This scenario would also provide the highest possible survivor benefit for whichever spouse lives longer.
  • My wife claims at 62 and I claim at 70: In this hybrid scenario, we would begin receiving my wife’s Social Security retirement benefit when she reaches age 62. This would allow us to take advantage of longer compounding returns and provide some protection against potential future Social Security cuts, as in scenario 1. We would postpone my Social Security retirement benefit, which is the higher of the two, until I reach age 70. As in scenario 3, this ensures that I would receive my largest benefit possible, and that whichever spouse lives longer would receive the maximum survivor benefit. My wife’s benefit if we started her payments at age 62 would be $1,523/month, and my benefit if we started my payments at age 70 would be $3,745/month.

Analyzing the Options

The next step in my analysis was to perform a quantitative assessment of these scenarios. To do this, I created a spreadsheet model that calculated the after-tax market value of the nest egg for each scenario by month from age 62 until age 95. I chose age 95 as the cut-off because this is the approximate upper historical bound of longevity in our families.

For each month from age 62 to age 95, the spreadsheet increased the after-tax market value of the nest egg for each scenario by the amount of the Social Security payments invested that month net of income tax, and by the after-tax investment returns achieved during that month on the portfolio balance.

Here is some additional detail about the factors included in the spreadsheet model:

  • COLA for Payments: I incorporated an annual Cost of Living Adjustment (i.e., a COLA) for the monthly Social Security payments. As a baseline, the model assumed a 2% annual increase. Note that I did a sensitivity analysis using higher and lower COLA rates, but they did not change the relative positioning of the scenarios in the final results.
  • Investment returns: For each scenario I modeled both a conservative return option (3% annual return before tax), and an aggressive return option (7.5% annual return before tax). For simplicity, the spreadsheet model assumed that investment returns occurred in a linear fashion throughout the year. In other words, Monthly Investment Return = (Annual return rate / 12) * (Monthly Starting Balance). It is clear that actual returns will not follow a smooth linear progression; I made this assumption to make spreadsheet modeling manageable.
  • Federal and state income taxes: The spreadsheet model assumes that income tax on each monthly Social Security payment is paid in full as soon as the payment is received, and that the net amount is then immediately invested. The spreadsheet model also assumes that tax on investment income is paid in full at the end of each month for the returns made that month. All Social Security payments and investment returns were taxed as ordinary income, using our highest Federal and state marginal tax rates. These timing and tax rate assumptions were made to simply spreadsheet modeling. They are conservative in the sense that they do not factor in potential preferential tax treatments (e.g., lower tax rates for qualified dividends and capital gains, possible elimination of income tax via a step-up in the cost basis at death, etc.), and they limit the compounding effect by assuming all taxes are paid immediately.
  • Survivorship: For each scenario, the spreadsheet calculates the after-tax market value of the nest egg by month if both of us live to age 95, as well as the after-tax market value of the nest egg by month if one of us lives to age 95 and the other passes away at age 75. Obviously, there are a very large number of survivorship possibilities, and it was not feasible to model all of them. I chose this specific case to give a sense of how the after-tax market value of a scenario would be impacted if one of us passed away relatively early.

The spreadsheet allowed me to easily compare the size of the after-tax nest eggs for the scenarios, for both the conservative return option and the aggressive return option. For any month between the ages of 62 and 95, I could easily spot which scenario yielded the largest after-tax nest egg under each return option, and by how much. I could also easily spot the breakeven age for one scenario versus another for each return option.

Note that the calculations underlying the breakeven age in my spreadsheet are quite different than the typical breakeven age calculations referenced in the retirement literature. Typical breakeven analyses simply calculate the age at which two Social Security payment streams reach equivalency (e.g., the age at which the summation of lower Social Security monthly payments starting at age 62 would equal the summation of higher payments starting at age 70).

These simplified calculations are not very useful when evaluating a claim and invest strategy, because they do not factor in the compounding effect of returns on the invested payments, the Cost of Living Adjustments (COLAs) for payments, or the effect of income taxes on payments and investment returns. My spreadsheet model accounted for these factors, albeit in a somewhat simplified manner. As you will see below, these factors can make a big difference.

The Results

Bottom line, here were the results of the spreadsheet model for our specific situation:

  • If my wife and I employed an aggressive return approach (i.e., 7.5% annual return before tax), then the both of us claim at 62 scenario was the clear winner. By this I mean that for every month during our retirement through age 95, the after-tax market value for this scenario was higher than the after-tax market value for all other claiming scenarios. This also held true whether my wife and I both lived to 95, or if one of us lived to 95 and the other passed away at 75. Furthermore, if we were to employ tax optimization techniques (e.g., buy and hold equities for extended periods to take advantage of lower capital gains rates or a step-up in capital gains at death), then the both of us claim at 62 scenario would have an even wider lead over other scenarios.
  • If my wife and I employed a conservative return approach (i.e., 3% annual return before tax), then the scenario both of us claim at 70 was the ultimate winner if both of us lived to age 95. However, the both of us claim at 62 scenario was in the lead until age 86, and only finished about 10% behind the both of us claim at 70 scenario in terms of nest egg size if we both lived to age 95. Also, if only one of us lived to 95 and the other passed away at 75, then the both of us claim at 62 scenario was the winner.
  • Note that in our case, a classic breakeven age calculation (i.e., calculating the age at which the payment streams reach equivalency) for the both of us claim at 62 scenario versus the both of us claim at 70 scenario is about 80.5 years of age. Contrast that with my spreadsheet model, in which the breakeven age is 86 under a conservative investment approach and over 95 for an aggressive investment approach. Cleary, accounting for factors such as the compounding nature of investment returns significantly extends the breakeven age for the both of us claim at 62 scenario versus other scenarios. This helps to explain why the classic advice of waiting until FRA or age 70 to claim Social Security retirement benefits does not necessarily yield the best result for those following a claim and invest strategy.

Evaluating the Options

After crunching the numbers, the both of us claim at 62 scenario was looking pretty good to me. The final step in my analysis was a qualitative assessment of how our claiming scenarios could be impacted by potential future changes to Social Security.

It is well known that Social Security is facing long-term financial problems. According to the 2020 Social Security Trustees Report, the Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay scheduled benefits only until 2034. At that point, the trust fund will be depleted and continuing tax income will be sufficient to pay only 76 percent of scheduled benefits.

Even when OASI is combined with the better-funded Disability Insurance (DI) trust fund, combined OASDI funds would be able to pay scheduled benefits only until 2035. At that point, the combined trust funds will be depleted and continuing tax income will be sufficient to pay only 79 percent of scheduled benefits.

It should be noted that the 2020 Trustees Report did not include the impact of the COVID-19 crisis, which has significantly decreased the amount of payroll taxes that will be collected in 2020 versus expectations. Due to COVID, many experts believe that the OASDI funds will exhaust several years earlier than projected in the 2020 Trustees report.

Given this backdrop, I believe there is a high likelihood that Congress will take actions within the next 5 or 10 years to shore up the financial position of Social Security, either by increasing revenues or reducing costs. The question for my wife and me is how these actions might affect our monthly benefit.

Most of the proposed corrective actions seem to focus on increasing Social Security revenues, such as increasing the payroll tax rate, increasing the amount of earned income subject to the payroll tax, etc. Proposals that increase revenue could shore up the financial position of Social Security without necessitating a benefit reduction for any current retirees. In other words, if these proposals are enacted they would likely not have an impact on my wife’s or my monthly benefits.

However, cost reduction measures have been proposed as well, some of which could reduce or eliminate the benefit for current retirees. One of the more prominent examples is means-testing. Under means-testing, a current retiree’s Social Security benefit would be reduced or completely eliminated if they have substantial non-Social Security income. While the income thresholds for benefit reduction vary among means-testing proposals, the Social Security retirement benefit for my both wife and me would be completely eliminated under every proposal variant that I’ve seen.

From what I can discern, means-testing does not currently appear to be a leading candidate for Congressional adoption. Nevertheless, there does seem to be a general sentiment on the rise in the US that wealthy people should pay more in taxes and receive less in government benefits than they do now. I believe this sentiment could influence the political decision-making process regarding Social Security in the coming years.

Accordingly, I believe there is a decent chance that means-testing or some other benefit reduction scheme could be adopted, which would eliminate or significantly reduce the benefits for my wife and me. This suggests that the both of us claim at 62 scenario would be best for us – i.e., that we should “take the money and run”. The earlier we claim, the more total money we would receive in the event that our payments would be reduced or eliminated in the future.

With the results of both the quantitative and qualitative analyses pointing in the same direction, my wife and I opted for the both of us claim at 62 scenario. Admittedly, there are several potential future states in which this decision would not be optimal.

For example, in this scenario we could be exposed to a sequence of returns risk for our invested Social Security payments. More specifically, if we adopt an aggressive investment approach with a heavy emphasis on equities, and if we experience a severe and protracted bear market let’s say 5 years from now, then a large part of the nest egg we would have built up by claiming at 62 would be wiped out. In this case, we almost certainly would have been better off claiming later, at FRA or age 70.

Similarly, if my wife and I both live to age 100 and Congress never implements means-testing, then claiming at age 70 would certainly have turned out better.

My wife and I are mitigating these risks in the implementation of our both of us claim at 62 scenario as follows:

  • I believe equity markets are currently overvalued, so we have opted to start out with a conservative investment approach (30% equities, 70% short-term fixed income). This will help to mitigate a sequence of returns risk in the event of a severe market decline. If markets become more reasonably priced in the future, we will move to a move aggressive approach.
  • Under current Social Security rules, my wife and I could suspend our benefits at FRA, and restart them at age 70. By doing this, we would earn delayed retirement credits which would result in a higher benefit when we restart payments. If it becomes clear in the next 4 to 5 years that Congress will not implement a means test or some other scheme that reduces our benefit, and if my wife and I remain in good health, then we may consider doing this. Suspending our payments would provide a higher survivor benefit for sure, and it could also yield a larger nest egg depending on how long we live.


After conducting this analysis, the only thing I know for certain is that nothing is certain. The future is inherently unknowable – we don’t know how long we will both live, we don’t know what will happen to Social Security in the future, we don’t know what future market returns will be, etc.

As such, our best bet is to select a claiming scenario that yields a decent outcome no matter what happens. In our case the both of us claim at 62 scenario provides the best outcome for most future states, and it provides a good outcome for the remainder.

Perhaps most importantly, it eliminates the worst possible outcome. That is, if we had decided to wait until age 70 and Congress were to implement a means test just before our payments were to start, we would get nothing. In that case we would be facing a boatload of regret rather than a boatload of cash, and that is the one outcome I would have trouble living with.

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