Deciding when to claim Social Security often involves a trade-off between preserving retirement savings and maximizing monthly benefits. Many retirees wonder whether it is better to spend down their savings now in order to delay claiming Social Security until a later age.
Drawing from savings early can allow a retiree to postpone Social Security, which increases the monthly benefit amount for life. Delaying benefits past full retirement age, up to age 70, results in an 8 percent annual increase in payments for each year postponed.
However, spending savings now reduces the portfolio that could otherwise continue growing through investments. The decision hinges on which asset—your savings or your future Social Security income—offers the better financial return over your expected lifetime.
A primary consideration is the guaranteed nature of Social Security benefits versus the uncertainty of investment returns. Delaying Social Security provides a predictable, inflation-adjusted income stream that will not run out, regardless of market performance.
On the other hand, drawing down savings early might leave a retiree vulnerable to market downturns or unexpected expenses later in life. Protecting the portfolio can provide flexibility and a safety net, but it forgoes the guaranteed increase from delayed Social Security.
Retirees must also account for their health, life expectancy, and other sources of income. Someone with a longer life expectancy typically gains more from delaying Social Security, while those with shorter horizons may benefit from claiming early to preserve their savings.
Another factor is the spouse’s benefits, as delaying the higher earner’s claim can maximize survivor benefits for a surviving spouse. This can significantly impact long-term financial security for couples.
Ultimately, the choice depends on personal circumstances and goals. A financial professional can help model different scenarios, comparing the growth of savings against the increase in Social Security payments to determine the most advantageous strategy.
