Research shows that Social Security replaces about 11% of income for those who earned over $300,000 during their working years. This may seem like a small percentage, but the guaranteed benefits that Social Security provides still act as a crucial base of income for many wealthy retirees.
The age at which you claim Social Security can have a significant impact on the amount of your monthly benefits and the total amount you earn over the course of your life. It may seem obvious to do everything in your power to maximize your monthly benefit, but the decision is actually much more nuanced than it appears – especially for many high earners.
Choosing a Social Security claiming strategy can be a challenge for those with high income or significant assets because it requires finding a balance between guaranteed income and potential investment gains. The following five strategies are some of the most commonly used by high earners to optimize their retirement plan.
Strategy 1: Claim Benefits Early
Your Social Security Full Retirement Age [FRA] is the age at which you can claim your full benefit, but you can receive a reduced benefit as early as age 62. Claiming benefits early isn’t right for everyone, but it can be the right decision in a few cases.
If you have an illness that reduces life expectancy, it could be wise to claim benefits as early as possible. This could allow you to maximize the money you receive by providing more years of income.
You may also choose to claim benefits early if you plan to retire before your FRA. In this case, Social Security benefits can help cover living expenses each month and reduce the withdrawals from your retirement investment accounts. You would make this choice if you believed the net effect of investing longer would surpass the income you’d sacrifice by taking Social Security early.
The most notable downside of claiming benefits early is that your monthly payments are reduced. If you claim benefits at the earliest possible age, your monthly benefit is reduced by 30% – assuming you were born after 1960, and your FRA is 67.
Another consideration is the earnings test which reduces your benefit if you claim Social Security before FRA while continuing to work. This rule often makes taking Social Security early, before you stop working, an inappropriate decision.
Strategy 2: Claim Benefits At FRA
The “standard” strategy is to claim benefits at your FRA. If you were born after 1960, your FRA is 67, and if you were born before that year, it is earlier.
You can think of FRA as the age at which the federal government believes you should retire. If you choose to retire at this age and begin claiming Social Security benefits immediately, you will be paid your “full” benefit. This means you receive the amount that the Social Security Administration calculated based on your highest 35 years of work – without any deductions for claiming early or additions for claiming late.
If you choose to retire before reaching FRA, but delay benefits until this date, you may need to supplement your income with withdrawals from retirement accounts. This could lead to a lower account balance and less potential for investment gains in the future. Additionally, a long life is not guaranteed, so you risk forgoing benefits if you pass before claiming benefits or shortly after.
Strategy 3: Delay Benefits Past FRA
Another option is to delay benefits past FRA, and you can do this up until age 70. If you delay until the last opportunity to claim benefits, your monthly payment is increased by 24% – assuming you were born after 1960, and your FRA is age 67.
The additional monthly benefit can help supplement your income during the later years of retirement when health care costs and other expenses are most likely to arise. It can also increase your lifetime benefit amount if you live into your late 80s or 90s.
However, if you do not live late into life, you could forgo benefits by delaying. Additionally, if you choose to retire before claiming benefits, you may have to rely on your savings to augment your income in the early years of your retirement. Like the previous strategy, this leaves you with a lower balance and a reduced potential for future investment earnings.
Strategy 4: Work Longer to Maximize Benefits
Your Social Security benefit is based on your highest 35 years of earnings. If you have fewer than 35 years of work history, zeros are used in place of the years in which you had no income. This can reduce your overall benefit, so it sometimes makes sense to delay retirement to replace those zeros with your current salary.
If you worked a lower paying job at any point in your career, you could also benefit from delaying retirement. In this case, you could replace lower earning years with your current salary to boost your overall benefit.
Strategy 5: Couples Claim the Lower Earner’s Benefits First
If you’re married, your Social Security strategy isn’t just an individual decision. It also impacts your retirement income as a couple and the income your spouse could receive if you pass before they do.
One strategy to coordinate benefits with a spouse is to claim the lower earner’s benefit first – either before or at FRA depending on your situation. Then, you delay the higher earner’s benefit until age 70.
Social Security survivor benefits allow a surviving spouse to keep the higher of the two monthly benefits that the couple was earning. By delaying the higher earner’s benefit until age 70, you gain the highest possible survivor benefit. This strategy can be especially beneficial if the lower earner is significantly younger than the higher earner in your relationship and they have many years left to earn.
Factors To Consider When Determining Your Claiming Strategy
There are three main key factors that you should consider before choosing a claiming strategy – your life expectancy, your intended retirement date, and your anticipated investment returns. Balance between these factors can be difficult to achieve, but it is extremely important to your overall financial plan.
Life Expectancy
If you have health problems, you may benefit from claiming your benefits early. On the other hand, if you are healthy and family history leads you to believe you will live to an advanced age, you may benefit from claiming benefits at FRA or even delaying.
As the chart below shows, those who pass away early in their retirement generally earn a higher lifetime benefit by claiming Social Security benefits early. On the other hand, those who live into their late 80s or 90s generally benefit from delaying benefits. This example is simplified and assumes your FRA is age 67 and you earn the maximum Social Security benefit as of 2025.
Intended Retirement Date
If you plan to retire later in life, you generally won’t need Social Security income to cover your living expenses while you are still employed. You may still enjoy having extra income every month, but you won’t need it to cover your expenses. This makes it easier to delay benefits past your FRA to gain a higher benefit amount when you do retire.
On the other hand, if you plan to retire early, you will need to get your income from somewhere – like a combination of Social Security and investments. In this case, you should consider your anticipated investment returns when deciding whether to claim benefits or delay them.
Anticipated Investment Returns
When you delay Social Security past your retirement date, you generally need to withdraw that amount from investment accounts to cover your expenses. In this case, you need to consider the lost potential gains from those investments later in life before deciding if you should get your income from Social Security or investment accounts.
As you decide between withdrawals from investment accounts and Social Security income, you should also consider the taxation of withdrawals. Traditional 401(k)s and IRAs are generally subject to income tax, which could impact your overall calculation.
There are also many other factors that could influence your future financial success – like shifting investment markets, inflation, changes to tax law, and healthcare expenses. Your overall retirement plan should include these factors, and you should consider how they could impact your Social Security claiming strategy. An experienced financial advisor is a crucial partner in crafting an effective retirement plan and determining how Social Security fits into it.
The Team at Meld Financial Can Help You Customize a Claiming Strategy
At Meld Financial, our team can help you determine when you should claim Social Security benefits and how to coordinate with your spouse. We do this by developing a holistic retirement plan that includes your investments, income, and potential threats to your financial success.
Our retirement planning process centers around a comprehensive wealth management program that we call Financial Fingerprint®. We developed this program in-house after decades of helping clients achieve their financial goals, and it brings together the most important aspects of your financial life in one easy-to-understand plan.
To learn more about Financial Fingerprint® and get started, contact us today.
