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I am of the age that I am constantly receiving mailings for local and web based retirement seminars, many touting "strategies" for withdrawing Social Security entitlements. This word, (in my mind) implies a certain complexity or deep knowledge that I am not aware of.

I know these seminars are just a way to pitch financial services, (I've attended one... and don't begrudge anyone promoting their business) and I know how to calculate the break even point. I'm not asking for any life coaching advice, I'm just wondering if there is some underlying "strategy" involved other than making the simple decision on what age to claim it.

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    Not an answer to the question, but these seminars are extremely likely to be scams.
    – R.. GitHub STOP HELPING ICE
    Commented Jan 30 at 20:30
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    Another factor to consider is that if you don't take your benefit until your full retirement age of 67 and you die then, the government then gives you nothing. Whereas if you take it early and die on your 67th birthday, you received 5 years of benefits. Though not relevant to your question, I recall that there was a benefit to a surviving spouse as to when to switch over to the higher retirement benefit of a deceased spouse and that may be part of the seminar pitch.
    – Bob Baerker
    Commented Jan 30 at 20:30
  • @BobBaerker, I would presume that the surviving spouse would simply get a proportionally smaller benefit as well. Otherwise the reasoning behind the decision of what age is the same, right? Unless I'm missing your point?
    – Michael Hall
    Commented Jan 30 at 20:39
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    If your life expectancy is longer than average a later start benefits you. If not, take the earliest possible start. That's all there is to it.
    – Joshua
    Commented Jan 30 at 21:30
  • @Joshua, I thought my understanding of that fact was made clear enough in the question.
    – Michael Hall
    Commented Jan 30 at 21:35

5 Answers 5

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There are a few considerations.

I know how to calculate the break even point

Many people miss an important caveat on the social security website when you get your estimate:

At your current earnings rate, if you continue working until...

your full retirement age (67 years), your payment would be about...
$medium a month age 70, your payment would be about...$large a month
age 62, your payment would be about... $small a month

That means if your plan is to stop working and then wait a few years before claiming, you might end up with a lower monthly benefit then you were expecting because the model they use doesn't have a break between working and claiming.

Knowing when to claim differs for people is based on how much they have in the bank, what they have in their traditional and Roth accounts. If they get a pension, and when, can also play a role.

In talking with coworkers nearing retirement there is a large disagreement about claim early or claim late. Proponents say their plan helps guarantee they don't outlive their money. Both camps have created spreadsheets to prove their point.

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    @MichaelHall, benefits are not based on income at time of benefit. They are (slightly simplified, but close enough) based on your top 35 earning years. Since most people have a higher inflation-adjusted income at 60 than at 25, additional working years tend to drop a relatively low-paying year from your early working life from the calculation, replacing it with a relatively high-paying current year. However, the difference in resultant 'full retirement age benefit' is not going to be huge in most cases. SS had a calculator in which you could estimate future earnings and calculate benefit.
    – user4556274
    Commented Jan 30 at 17:37
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    Very rough estimate, as of last time I ran the numbers: Payments grow at about 8% per year you defer starting them. That's not at all a bad rate of return. But of course the longer you defer, the fewer years you draw them for and the more risk you die before crossing break-even. The GOAL of the formula is for it all to come pretty close to averaging out statistically, but what actually happens depends on the luck of the draw. There are small secondary effects, eg on income tax brackets. I have no immediate need for the cashflow, I'm not worrying about heirs, simplest to defer. YMMV.
    – keshlam
    Commented Jan 30 at 18:33
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    As was said: 35 best years. One year lower makes no difference; one year higher makes little difference.
    – keshlam
    Commented Jan 30 at 18:34
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    When website calculates your benefit you can overwrite the amount of expected future earnings. You can just zero it out if you want to stop working and delay benefits
    – Hilmar
    Commented Jan 31 at 1:35
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    @keshlam Of course, if you don't have 35 years yet then each extra year is inevitably higher and the amount of effect is increased both from a larger change (0 to X salary) and from how many years you are short.
    – Dragonel
    Commented Jan 31 at 19:24
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No, it's just a way to put a bunch of already proven to be gullible people into a room for some pressure sales session.

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  • There might be questions of how to manage the rest of your money as you start SSI, but that's a different question.
    – keshlam
    Commented Jan 30 at 2:53
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    Thanks for confirming my suspicions.
    – Michael Hall
    Commented Jan 30 at 4:44
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NB: I'm not a retirement or tax specialist, this advice is based on my own observation and self-education.

Some high level ideas to consider wrt Social Security (SS) include:

  1. The surviving spouse keeps the max of the two people's benefits in the event that one dies. This means that if the higher earner files late, the expected payout is higher because it's based on two people's mortality and not just one.
  2. Longevity - if you have reason to believe you might live shorter than average (example: you have a chronic illness with mortality risk) taking SS early may be better. If you have a crystal ball (or are worried about outliving retirement savings) filing late and collecting payments for longer than the average life expectancy will yield a higher payout.
  3. Total returns - at high rates of investment return (over 8% or so), taking SS early and investing the difference could allow you to accumulate more money than taking SS at 67. However, risk-adjusted this seems like a gamble with limited upside and significant downside.
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    Thanks Chris. I'm noting that people are pessimistic here... e.g. "file early if you think you will die early." How about file early if you want to retire early to travel, ski, hike, and live an active life in your early 60s?! Anyway, regarding #3, I have run the numbers and investing doesn't move the break even point. (it's actually a range of several years in your late 70s, which by then I should be more settled and need less cash flow.)
    – Michael Hall
    Commented Jan 30 at 23:35
  • Spending doesn't always go down after retirement. Losing some employer benefits, increasing medical costs, and simply having more time to pursue your own interests can offset, or more than offset, eliminating costs like commuting. My own assumption is that my spending won't change a lot -- but I've always lived like a well-founded college student, so that's not either a tiny or huge amount. And I'm not reliant upon SSI; it will be nice to have but if the plug gets pulled I'll do OK.
    – keshlam
    Commented Jan 31 at 15:02
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If you are a single person that has been working for 30 years who will be claiming under their own record, the decision is pretty straightforward.

  • Figuring the break-even point on total financial returns based on your life expectancy.
  • Much harder, figuring out the break-even point on total utility based on how healthy and active you're going to be. If collecting early lets you stop working a job you don't love and travel for a few years before you start feeling your age, that may be worth getting a few dollars less over time.

For couples and particularly couples with more complicated histories, the decisions are more complicated.

  • The lower earning spouse can claim benefits on their record early while the higher earning spouse waits to claim under their record. Then both can claim on the higher earning spouse's record.
  • One or the other spouse may be able to claim benefits under an ex spouse's record if the marriage lasted at least 10 years. That can add complexity to the question of which record(s) to claim under when.
  • In the event of death, the surviving spouse can continue to claim benefits under their spouse's record. So the financial break-even point depends on the joint life expectancy not just the life expectancy of the claimant.

If you've got a couple that have been married for a while but both came from earlier marriages that met the 10 year threshold, figuring out when to claim and which records to claim under can get reasonably complicated. The more parity there is between spousal earnings, the harder those questions tend to get.

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I know how to calculate the break even point.

I ran that exercise too and considered:

  • My own life expectancy based on actuarial projections and my family history (parents, aunts, uncles, (great) grandparents, etc.) - a tad better than the actuaries.

  • Projected inflation. (Although SS benefits also have their adjustments too to counter inflation.)

Earlier conclusion: Over my retirements years, the total real*1 benefit, factoring life expectancy, somewhat favored drawing late. (i.e. closer to age 70 than 62).

The biggest factor I missed: spousal benefits @Chris, (better half is younger and longer life expectancy) strongly suggests I delay as long as possible.

I'm just wondering if there is some underlying "strategy" involved other than making the simple decision on what age to claim it.

Yet the overriding issue is realizing that SS, if possible, should not be the lion share of retirement strategies as it is meant to be and is only a modest stipend. If possible, focus and optimize your other assets first (family/community relationships, health, retirement assets) and then draw on SS to supplement those. Focusing on SS can detract from other more important issues.

When possible, SS should not be the main focus of retirement.

*1 A $1.00 in 2024 is worth more than a $1.00 in 2034, etc.

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