Why Social Security Timing Isn't About Maximizing Lifetime Benefits

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Social Security is a critical part of making retirement even somewhat affordable for many Americans.

According to Fool.com, Social Security can replace over half of career-average wages for low-income Americans, and about 40% for middle-income Americans. By the time you reach the maximum Social-Security-taxable income, benefits replace just over a quarter of your career-average income.

Obviously, unless your income is extremely low, you can’t count on Social Security as your sole source of income.

However, given how little most Americans have saved for retirement by their 60s, Social Security can make the difference between a barely livable retirement vs. abject poverty in old age.

Common Advice on Timing When You Claim Benefits

The common advice on timing your claim for retirement benefits speaks to your life expectancy.

This advice attempts to help you maximize your lifetime benefits. If you’re in good health, and come from a long-lived family, you’re advised to hold off claiming benefits. This because benefits increase by about 8% for each year of delay (up to age 70).

On the other hand, if you come from a family with relatively short life expectancy and/or if your health is such that you don’t expect to survive beyond your 70s, you’re advised to claim as soon as you can, since the reduction in benefits will likely be less than the loss of several years’ worth of early benefits.

When Do Americans Usually Claim Social Security Retirement Benefits?

According to USA Today, 62 is by far the most common claiming age (34.3%), with over 57% claiming before their full retirement age. Less than 8% delay beyond full retirement age, despite the 8% increase per year of delay (up to age 70).

Why Do Americans Claim Social Security Benefits Early?

According to a survey conducted by the National Bureau of Economic Research (NBER), “Common rationales for claiming Social Security before full retirement age include stopping work, liquidity, poor health, and concerns about future benefit cuts due to policy changes.”

Let’s break these down.

  1. Stopping work” – this could be due to achieving early retirement by achieving their financial freedom. Alternatively, it could be due to layoffs before retirement age, and not finding another job. That last is what happened to my dad when he was 60. Thankfully, he had defined-benefit pensions from previous employers so he could afford to retire early.
  2. Liquidity” – these could be people who find themselves underemployed as they reach age 62, and claiming benefits is their best option to cover expenses beyond their income.
  3. Poor health” – these could be people who follow the common advice when their health makes it seem unlikely they’ll survive long enough for the higher benefits achievable through delaying their claim to outweigh the extra years of (lower) benefits.
  4. Concerns about future benefit cuts due to policy changes” – these are people who have heard that the Social Security trust fund will run out sometime in the next couple of decades, and believe benefits will be stopped or reduced dramatically even for those already retired at that point.

Will Social Security Be Here for You?

Addressing the last reason first, according to the Congressional Research Service, the trustees of the Social Security Administration expect the Federal Old-Age and Survivors Insurance (OASI) Trust Fund to run out in 2034, and the Federal Disability Insurance (DI) Trust Fund to run out in 2065.

If the two funds were to be combined, they’d run out in 2035 (the Congressional Budget Office, CBO, made different assumptions in a 2019 report, and projected the funds would run dry as early as 2032).

These projections predate the Covid pandemic and its impacts, so updated projections may well see the funds depleted in under 10 years.

However, this does not mean Social Security benefits will stop once the funds run out. Any of the following steps (or a combination) will resolve the issue.

  • Delay full retirement age again (a 1983 amendment delayed it gradually from age 65 to 67 over 22 years)
  • Reduce benefits by 21% when the OASI fund runs out, and gradually continue the reduction to 27% by 2094
  • Means-test benefits, reducing or eliminating them for the wealthiest of retirees
  • Increase the maximum wages to which Old Age, Survivors, and Disability program taxes apply from its current $142,800, potentially with no limit
  • Increase Old Age, Survivors, and Disability program tax rates from their current 12.4% to 15.7% once the OASI fund is depleted, gradually continuing to increase it to 16.9% by 2094

Since none of these is palatable, we can count on our elected officials to continue kicking the can as far down the road as they can.

However, once they’re faced with an imminent inability to comply with the relevant laws that require paying full benefits and prevent doing so at a deficit, they will enact some combination of the above steps, just as they did back in 1983.

A Better Way to View Social Security Benefits

Let’s look from this perspective at the three main reasons people file for early benefits (other than fear that Social Security benefits will be severely cut or completely stopped).

Stopping Work

If you were laid off in your early 60s and don’t have a better option, early filing may well be your best bet.

However, if you achieved financial freedom and chose to retire early, delaying your claim reduces your long-term risk of running out of money. You get a combination of a guaranteed 8%/year return, with a built-in cost-of-living adjustment on top.

Claiming early and investing in the stock market that money which you don’t need to cover expenses exposes you to market risk, and is very unlikely to do better than 8% above inflation.

If you end up dying before the breakeven point, you could view the loss as an extra premium paid to insure you would not run out of money before your death.


If you’re underemployed in your early 60s and can’t afford to not claim benefits as early as possible, then doing just that may indeed be your best path forward.

Poor Health

If you’re in poor health and follow the common advice, you’d take early, reduced benefits. If you indeed die soon after, you’ll have received more money than you would have otherwise.

However, if you beat the odds and live much longer than you expected, your benefits would be reduced by as much as 30% relative to claiming at your full retirement age, and by 44% relative to claiming at age 70. Would such a drastic cut allow you a comfortable retirement?

Perhaps, but then again, perhaps not.

Thus, delaying benefits (if you can afford to), even if you think the odds are that you wouldn’t reach the breakeven point, may be the better choice for you. This simply because it reduces your long-term risk of running out of money.

The Bottom Line

Social Security is best seen as longevity insurance. As with all insurance products, you pay a premium to cover the insured event, and if the event (in this case aging) occurs, the plan pays out. All other things being equal, the longer you live, the more benefits you’ll collect.

Trying to maximize your payout will indeed, on average, give you more money over your lifetime. However, it increases your long-term financial risk.

It isn't necessarily the case that early claiming is wrong for everyone, nor that delayed claiming is best for everyone.

It's just that the question you should ask yourself is not, “How do I get the most money out of Social Security over my lifetime?” Instead, it should be, “What claim timing makes the most sense given my retirement needs and my other available resources?”


This article is intended for informational purposes only, and should not be considered financial or legal advice. You should consult a relevant professional before making any major decisions.

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