Beyond the Numbers Blog series: Planning for Financial Peace of Mind
At its core, financial analysis, and therefore some aspects of wealth planning, is all about the numbers. Utilizing spreadsheets, projections, knowledge of tax laws, historical assumptions, and many other empirical datapoints is foundational in constructing a solid wealth plan. But life is not a spreadsheet. Done well, we believe wealth planning involves weighing the objective calculations against the critical subjective factors of many life decisions. And it is not uncommon for the subjective to trump the objective as it is so difficult to put a price or a numeric value on a feeling. Realizing this, we believe it is our role as advisors to help clients balance these factors and make well-informed decisions by “doing the math” and then subjugating the numbers to the broader, and more important, real-life context of what really matters to a family. By no means does this discount the importance of financial analysis. Instead, it is recognizing the proper role for the numbers as just one factor, not the only factor, to help make the decision.
So this month we continue our series of articles that analyze many decisions clients face that require balancing the objective reality of financial analysis with the subjective value of helping clients sleep at night. We believe this integration is where the art of planning goes well beyond the science of finance. And while Google, and now ChatGPT (and other AI engines), can certainly retrieve and formulate data efficiently, they can’t look a person in the eye, read body language, notice tears welling up, or integrate family history to ensure financial decisions are aligned with a family’s core values.
Should We Really Wait Until 70 to Claim Social Security?
Regardless of the size of a family’s investment portfolio, cash flow is the heartbeat of retirement cash flow planning. In the most basic of terms, cash must flow to pay the monthly bills, finance travel expenses, contribute to the welfare of children and grandchildren, donate to charities, or any other innumerable expenses. With retirement, the paycheck or the business distributions are no longer deposited to the checking account each month, so the cash must flow from other sources and for many people, Social Security is one of the foundational pillars.
Realizing this, the decision on when to claim Social Security is critical. Claiming too early can result in decades of reduced benefits, adding up to potentially hundreds of thousands of dollars in missed benefit. Ironically, waiting until the maximum age of 70 to claim benefits may come with anxiety and could result in higher lifetime benefits – or none at all.
For many Americans, Social Security is not just one source, it is the most important source of retirement income. According to the Social Security Administration, Social Security represents about 31% of income for people over 65, with 39% of men and 44% of women relying on Social Security for 50% or more of their income. In these situations, the investment portfolio is usually limited and does not supplement the monthly Social Security check.
However, for many of our clients, Social Security is just one cash flow source to consider in the context of an investment portfolio that can comfortably supply monthly cash flow, without concerns of exhaustion before the end of life. It’s these cases where the claiming decision isn’t just informed by math & probability but instead, it must factor in personal circumstances and peace of mind. Said differently, the claiming decision must be put in context.
(Please note: This article does not address the viability of future Social Security payouts. This is a much longer topic that I addressed in my article in May 2024 and in a feature in Investment News in April 2025. In short, I believe folks in their 60s and older should not be overly concerned about the dependability of Social Security benefits being paid, but rather, younger people under 40 should temper expectations as any necessary cuts and adjustments will likely be targeted at them, as it was in 1983 when the last Social Security adjustment was completed.)
Conventional Wisdom
There’s an old, and somewhat morbid, maxim that states, “tell me the day you’re going to die, and I’ll tell you exactly when to claim Social Security.” The idea is that we can calculate the maximum benefit knowing if a person will live until 63 or 93. The problem, of course, is no one really knows when they will die, so we must use our best guess on life expectancy then factor in personal circumstances.
So, first and foremost, if someone has yet to claim and they have a terminal illness with a very high chance of imminent death, they should likely claim their Social Security benefit as early as possible to collect benefits as long as possible, even if the benefit is permanently reduced. However, this can affect the spouse’s survivor benefit, so this decision should not be taken lightly. As this decision can be very complicated, we highly recommend you work with an experienced advisor who can help with this analysis.
Generally speaking, conventional wisdom says that if a person can reasonably expect to live to their mid-80s or beyond, one should delay claiming Social Security until age 70 to allow credits to increase 8% per year beyond Full Retirement Age (FRA). The mid-80s is the age range when the larger benefit amount (by delaying until 70) “catches up” to the 3 years of payments, assuming a claim at 67 (FRA if born 1960 or later). So, every year beyond the “break even” year, the decision to wait would be validated. Even better, the claimant can be confident that they have secured a government guaranteed, inflation adjusted annuity for the rest of their life, which is a wonderful thing in a retirement cash flow plan.
Going Against the Grain
First, assuming reasonable health, it’s almost always recommended that people, at a minimum, wait until their FRA, (full retirement age) given the punitive benefit cut of claiming up to five years early (age 62). Barring terminal illness, we counsel families to make the decision binary, between claiming at FRA versus waiting until age 70.
Though some might consider it wealth planning blasphemy, waiting until 70 to claim might not always be fit for a family. Why? Because, in the context of the broader multigenerational wealth plan, claiming before 70 and locking in the lower lifetime benefit might not matter enough to offset the psychological benefit of the new influx of cash flow. In short, the lower benefit might be worth the peace of mind from claiming and seeing that direct deposit hit the checking account each month.
What’s required to analyze this? Doing math of course. However, the math and empirical analysis are not THE definitive and deciding factor in making this decision. Rather, the analysis is simply to calculate a reasonable estimate on the “price” of locking in a lower benefit earlier in life instead of waiting until age 70 to claim. Once that dollar amount is reasonably estimated, it can be contextualized to determine if it matters enough to wait.
Running the Numbers: How much does that “feeling” cost?
To provide an example, a couple who claims Social Security at 70 and making the big assumption they live until their 90s could yield an economic benefit between $200,000 to $400,000 over 30 years, which is a substantial sum of money. Done well, this analysis requires actual client Social Security statements with full earnings records. Of course, each case is unique.
Consider the following:
- In most cases, the breakeven on delaying a claim starts to pay off in a couples’ early 80s. So, they really won’t see the benefit of the delay until they are nearing the final third of their retirement years.
- Typically, they would have had to pull dollars from the portfolio for at least 3 years (claiming at 70 versus FRA of 67) to supplement their living expenses until the Social Security benefits kick in. If this cash is pulled from tax deferred accounts, it is 100% taxable while Social Security benefits max out taxation at 85% of the benefit.
- Children can’t inherit their parents’ Social Security benefits, but they do inherit their investment portfolios. So, to the extent Social Security can reduce portfolio withdrawals and allow for compounding growth, this could mean a larger inheritance, depending on the circumstances.
- If one or both spouses dies before the breakeven year, they would have been better off claiming early.
In real-life terms, if a couple retires with a $4,000,000 portfolio and it cost them $300,000 of lower Social Security benefits over 30 years (about $10,000 per year or $833 per month) and the benefit doesn’t kick in until age 83, do they really care that much? Would their life be more fulfilling and peaceful if they claimed at 67 and had one less thing to worry about? Maybe or maybe not. This is where the art of planning supersedes the science of finance and conversations, goals and family circumstances supplant break-even analysis on a spreadsheet.
Final Note & Recommendation
As with any financial analysis, details matter, and we believe Social Security claiming can be one of the most complicated topics in the planning world. We must factor in portfolio returns, cash flow, life expectancy, tax policy, and the interplay of spousal and survivor benefits. So, it is imperative to engage with an experience advisor to ensure all these factors are integrated. To that end, below is a summary of the advantages and disadvantages of claiming Social Security at FRA but before age 70.
Advantages
- Peace of mind knowing the benefits have started and you have a reliable source of new cash flow you can enjoy in your most valuable retirement years.
- Reduced reliance on portfolio withdrawals for living expenses
- If the investment portfolio is mostly tax deferred accounts, potentially lower income taxes
- Less concern with “market crashes” on investment portfolio
Disadvantages
- Potentially permanent reduction in lifetime benefits with a long lifespan
- Worry about living until early 80s to break even on the claiming decision
- Potentially lower spousal benefits if the married couple has large differences in lifespan
Bottom Line:
Social Security claiming is complicated enough when just running the numbers and scenario planning. But the context of a family’s broader wealth plan and the subjective value of peace of mind should not be ignored, and is often more important to yield an enjoyable, fulfilling, and peaceful retirement strategy.