3 min read
Should Clients Delay Social Security?
Morningstar explores a key retirement planning question that goes beyond the traditional advice to wait as long as possible.
Summary
Retirement planning often comes with a familiar piece of advice: delay claiming Social Security if you expect to live a long life. But is waiting always the best financial move? In this discussion, Morningstar's Jason Kephart discusses the trade-offs behind one of retirement's most important decisions, revealing why the answer depends on more than just maximizing your monthly benefit.
We examine a critical question many retirees face: how do you fund the years between retirement and claiming Social Security? While delaying benefits can increase future income, retirees who rely on portfolio withdrawals to bridge that gap may face unintended consequences. Kephart explains how tapping investment assets earlier can reduce a portfolio's long-term growth potential and leave retirees with lower ending balances later in life.
Get the Research
Our research on the state of retirement income dives into:
- How to navigate market and spending shocks during retirement
- The impact of public and private investment in retirement strategies
- Which retirement withdrawal strategies are right for your clients' retirement needs
Video Transcript
When to Consider Delaying Social Security
Christine Benz: Conventional wisdom in the realm of retirement planning is that if people think they have average or maybe longer-than-average life expectancy, hold off on that social security claiming date.
One conclusion that you reached by examining the data is that it really depends on what you're doing for income until that social security kicks in. So, can you talk about that dimension? And I think we initially were scratching our heads at that result, but walk us through what you found.
Jason Kephart: Yeah, there's a lot of reasons to want to delay security. You get like an 8% boost in spending from social security every year you delay it after 67. So there's definitely reasons to think about it.
Bridging the Income Gap Before Benefits Begin
Kephart: I think the big question becomes what do you do in the meantime? Like in theory, if you can and want to work until 70 and delay until then, that's probably an ideal situation. We're just thinking about maximizing social security benefits, but most people aren't going to work until 70, at least not full-time.
So, if you are retiring at 67, which is the full retirement age, or even earlier for whatever reason, how do you bridge that gap between retirement and social security at 70, that kind of golden goose that people like to chase?
Impact on Long-term Portfolio Balances
Kephart: What we found is if you're having to pull from your portfolio, the impact is essentially that you're going to have less money to grow over time. So, in most cases, you're going to end up with a lower ending balance. So if you wanted to leave money behind to heirs or charity, you're going to have less money there because you're just pulling so much money in those three years to make up for the fact that you don't have social security coming in.
You don't want to just live on more meager terms because you just retired. It's time to live it up, right? You know, enjoy. You've worked very hard for this. You should enjoy it. So, that's what we found is basically if you're having to withdraw from your portfolio to make up for that, you're just going to end up with less money probably at the end. And that's the trade-off there.
