Typical retirement planning usually treats delaying Social Safety till age 70 as a default finest apply, citing the worth of delayed retirement credit and better assured lifetime earnings. For top-net-worth households, nonetheless, Social Safety represents a comparatively small part of general wealth. As soon as taxes, alternative price, and life like longevity possibilities are integrated, delaying advantages usually features much less as a superior funding choice and extra as a type of longevity insurance coverage, one that will come at a measurable price to after-tax wealth and liquidity.
For monetary advisors, the query is due to this fact not whether or not delaying Social Safety is “proper” or “improper,” however easy methods to body the trade-offs for prosperous shoppers whose portfolios already bear a lot of the longevity and earnings threat.
Most Advantages and the Financial Value of Ready
Utilizing Social Safety Administration (SSA) projections for a most‑incomes employee reaching eligibility within the mid‑2020s, approximate month-to-month advantages are:
| Claiming Age | Estimated Month-to-month Profit |
| 62 (Early) | $3,000 |
| 67 (FRA) | $4,200 |
| 70 | $5,300 |
Ignoring taxes and funding returns, the cumulative breakeven age, whole advantages from delaying equal these from early claiming, usually falls within the early 80s. These breakeven factors happen later as soon as taxes and funding returns are thought-about.
For top-net-worth people who proceed to earn significant earnings from employment or energetic companies, claiming Social Safety on the earliest eligibility age is commonly impractical. Previous to full retirement age (FRA), Social Safety applies an earnings take a look at to wage and self-employment earnings (not funding earnings), and the brink is comparatively low. Consequently, advantages could also be partially or absolutely withheld.
In apply, many greater incomes earnings people select to delay claiming till advantages will be collected with none earned-income limitations and with the added benefit of upper lifetime advantages. For advisors, this reframes Social Safety claiming as a capital-allocation choice throughout the retirement steadiness sheet, not a standalone earnings optimization train.
Early Claiming as a Capital-Allocation Resolution
An alternate method is to assert earlier, at age 62 or at full retirement age (FRA), and make investments the proceeds conservatively. The asset combine would usually emphasize high-quality fastened earnings, similar to Treasuries, municipals, or diversified low-risk methods.
- Lengthy-term nominal return: roughly 4–5% pre-tax.
- After-tax return for top-bracket traders on taxable belongings: roughly 3%, relying on asset location and tax administration.
Below these assumptions, a person claiming at age 62 can accumulate a considerable pool of liquid capital by age 70, whereas the person who delays has obtained no advantages throughout that interval. Importantly, this capital stays absolutely liquid and accessible for spending, reinvestment, gifting, or property planning.
For advisors, this reframes Social Safety claiming as a capital-allocation choice throughout the retirement steadiness sheet, relatively than a standalone earnings optimization train.
Longevity Threat, Quantified
The strongest argument for delaying Social Safety is longevity insurance coverage: greater assured earnings if a person lives effectively past common life expectancy. That profit, nonetheless, have to be weighed towards the after-tax financial worth of advantages obtained earlier and invested.
Early Claiming and a Potential $220,000 After-Tax Capital Benefit
If advantages are claimed at age 62 and invested by way of age 70, the early claimant can accumulate a significant pool of capital earlier than the delayed claimant receives any advantages.
Utilizing illustrative assumptions:
- Most profit at age 62: $3,000 per 30 days.
- After-tax profit, assuming roughly 68.5% retained after federal tax (37%*0.85): about $2,055 per 30 days.
- After-tax funding return: roughly 3.15% yearly, equal to roughly 5% pre-tax for top-bracket taxable traders.
- Month-to-month compounding.
Below these assumptions, the cumulative worth of invested advantages at age 70 is roughly $220,000. Against this, the person who delays claiming till age 70 has gathered no Social Safety advantages throughout this era. Importantly, the $220,000 represents liquid, investable capital, not an annuity equal, and due to this fact constitutes the preliminary benefit of the early-claiming technique.
Even when the after-tax funding return is decreased to half the illustrative assumption, the cumulative worth at age 70 stays roughly $210,000. At twice the assumed return, cumulative invested advantages rise to roughly $255,000. Over very lengthy horizons, funding returns matter extra, however the payoff profile is uneven: greater returns have a better influence on outcomes than decrease returns.
Internet Benefit by Age at Demise
The desk beneath exhibits the estimated internet after-tax benefit of claiming earlier versus delaying to age 70. Internet benefit displays:
- After-tax Social Safety advantages obtained
- After-tax worth of invested early claiming
- The upper month-to-month profit obtained by the delayed claimant.
Constructive values favor earlier claiming; destructive values favor delaying to age 70.
| Age at Demise | Male Survival Chance | Feminine Survival Chance | Internet Benefit: Declare at 62 vs. Delay to 70 | Internet Benefit: Declare at FRA (67) vs. Delay to 70 |
| 70 | 70% | 81% | $220,000 | $110,000 |
| 80 | 48% | 62% | $90,000 | $55,000 |
| 90 | 17% | 28% | -$90,000 | -$20,000 |
| 95 | 5% | 11% | -$200,000 | -$65,000 |
| 100 | 1% | 2% | -$330,000 | -$120,000 |
Survival possibilities are approximate cumulative survival from age 62 (for the 62 vs. 70 comparability) and from age 67 (for the FRA vs. 70 comparability), based mostly on SSA interval life tables. Figures are rounded for readability.
How one can learn the Desk:
- Age 70: The early claimant’s benefit is nearly fully the gathered advantages invested, roughly $220,000.
- Ages 75 to 85: The benefit declines because the delayed claimant’s greater month-to-month profit begins to slim the hole.
- Round age 88 to 90:Â The 2 methods usually converge.
- Excessive longevity (95 to 100):Â Delaying to age 70 ultimately produces greater cumulative after-tax advantages, however solely in low-probability eventualities.
When outcomes are weighted by survival possibilities relatively than excessive endpoints, claiming at age 62 or at full retirement age usually produces greater anticipated after-tax wealth for high-net-worth retirees.
Backside Line
For monetary advisors working with high-net-worth shoppers:
- Claiming Social Safety at age 62 or at full retirement age and investing conservatively can usually maximize anticipated after-tax wealth.
- Delaying advantages till age 70 is finest understood as a type of longevity insurance coverage, relatively than a universally superior monetary return.
- The suitable technique will depend on client-specific elements, together with well being, tax profile, portfolio construction, spousal concerns, and preferences for liquidity versus assured earnings.
- As a result of no shopper can know ex ante which claiming technique will show optimum, the advisor’s position is to weigh alternative prices towards low-probability longevity outcomes relatively than optimize for a single excessive situation.Â
Sound retirement planning emphasizes probability-weighted outcomes over deterministic endpoints. For a lot of prosperous households, earlier claiming due to this fact warrants severe consideration as a part of a broader wealth-management technique.
References
- Social Safety Administration, Interval Life Tables (most up-to-date accessible knowledge)
- Social Safety Administration, Retirement Profit Calculations
- IRS Publication 915, Social Safety and Equal Railroad Retirement Advantages
This text is for instructional functions solely and doesn’t represent individualized tax or funding recommendation.
