4 Ways Delaying Social Security Could Backfire in Retirement
Delaying Social Security can often be a smart move within many retirement plans. But that’s not always the case. Sometimes, there may be a case to not delay Social Security and rather to start it as soon as possible.
Regardless, the common guidance you’ll often hear is: “Delay Social Security as long as you can.”
It’s true that waiting past your full retirement age (up to age 70) increases your benefit by about 8% per year. All things considered, that looks like a guaranteed return that’s hard to beat. There are a lot of other benefits of delaying too.
But in real life, things aren’t always so straightforward.
Delaying your benefit comes with trade-offs that can ultimately impact your retirement plan. Before deciding to wait, it’s important to understand what you’re giving up and what could go wrong.
Here are four ways delaying Social Security could backfire and how to make sure it doesn’t.
1. You May Not Live Long Enough to Benefit
One of the biggest assumptions built into the “delay Social Security” strategy is that you’ll live long enough for it to pay off.
When you delay, you give up monthly checks today in exchange for larger checks down the road. But how long does it take for that to pay off? Your “breakeven” age is the age when the total cumulative benefits of delaying and collecting early are equal. For most, their breakeven age is around their early 80s. So once you pass your breakeven age, your total cumulative benefits collected would be greater for a delayed strategy.
Said another way, if you live past your breakeven age, you would’ve collected more by waiting.
Of course, none of us know how long we’ll live. That’s what makes this such a tough decision. If you’re in great health and have a family history of longevity, delaying may still make sense. But if your health is uncertain or if you simply prefer not to gamble, claiming earlier may give you more peace of mind.
This decision becomes even more difficult for married couples, since one spouse’s claiming age also affects survivor benefits. It’s not just about your longevity but your spouse’s, too.
2. You Might Rely Too Heavily on Your Portfolio in the Early Years
Delaying can put more pressure on your investments in a down market.
If you don’t collect Social Security right away, you’ll need to fill the income gap from somewhere else, which is usually from your investment portfolio.
That’s fine when things are doing well. But if you retire into a bear market or recession, this strategy can backfire. You’ll be withdrawing more from your portfolio just as it’s losing value, making it difficult to recoup those losses and potentially shrinking your future income.
The technical term for this is called sequence of returns risk; simply put, it’s the risk of hitting a very bad stretch of years in the stock market. This is especially dangerous in the first decade of retirement. Even if the market recovers later, those losses combined with withdrawals can cause lasting damage.
Delaying Social Security means your investments need to do the heavy lifting, often during these vulnerable years. If the plan relies too heavily on markets behaving, it may not be as safe as it looks on paper.
Having said that, there are ways to manage this risk in retirement including having a cash reserve, a bond ladder, a flexible withdrawal plan, etc. But it’s important to recognize that delaying Social Security could increase your exposure to these risks, and it should factor into your decision.
3. You May Miss the Chance to Fully Enjoy Your Healthiest Years
Waiting for a bigger check could cost you time you can’t get back.
Another risk of delaying Social Security is that it may limit your ability to enjoy your retirement while you’re still in good health. It’s a fact of life that our active, mobile and fulfilling years may not last as long as our overall lifespan. It’s common to see most retirees being energetic and adventurous in their 60s but then slowing down in their 70s and 80s.
By postponing income, you may also postpone experiences like travel, hobbies, and time with family because you’re waiting for your “full” retirement to begin. But if your health changes in the meantime, you can’t get that time back.
That doesn’t mean you should claim benefits at 62 just to start spending.
But it does mean your Social Security strategy should reflect when you want to spend, not just how much you’ll receive.
A retirement plan that prioritizes front-loaded spending (when you’re healthiest) may argue for claiming earlier even if the monthly check is smaller. But there are other things that should be considered in case like this and it may still make sense to delay while relying on your investments, it all depends.
4. You May Limit Your Flexibility Later
One of the most overlooked trade-offs of delaying Social Security is that it can reduce your spending flexibility.
Here’s what I mean: when you delay claiming Social Security, you may have to draw more heavily from your retirement portfolio to cover expenses in the meantime. Depending on how much you have saved, it can leave you with fewer assets later on. And with fewer assets, you lose flexibility for future opportunities.
Social Security is reliable income, but it’s also rigid. You can’t take a lump sum and you can’t ask the government to send three months of checks at once because you have a chance to take a once-in-a-lifetime trip.
There are cases where some retirees spend down nearly all of their portfolio just to reach age 70 and claim a larger benefit only to find themselves with little or no savings left afterward. They’ve locked in a high guaranteed income (one that is adjusted for inflation), but they’ve given up nearly all flexibility in the process.
This trade-off is especially important for retirees with modest investment portfolios. If you have $500,000 saved for retirement, your spending decisions carry more weight than someone with $10 million.
In many cases, maximizing guaranteed income through Social Security makes sense. But for others, it may be more rational to preserve more of their portfolio. It depends what your goals are and what you’re hoping to accomplish in your retirement.
Bottom Line
Delaying Social Security can absolutely be the right move but it’s not a guaranteed win; life isn’t a spreadsheet!
When you delay, you’re taking some risks that need to be considered:
- You may not live long enough to benefit
- You may need to withdraw more from your portfolio in volatile markets
- You may miss the window to spend freely while you’re still healthy
- You may limit your ability to adapt if life changes
These risks don’t mean you shouldn’t delay. But they do mean your decision should be based on your complete retirement plan. You’ll need to consider things like how your claiming decision can support your desired lifestyle, your tax objectives, estate planning goals, investment plan, etc. When it comes to evaluating your Social Security strategy, rules of thumb should be taken with a grain of salt.
Lastly, as you evaluate your claiming options, be sure to consider how taxes could affect your Social Security income. We’ve written a detailed article that breaks down how Social Security benefits are taxed in retirement and what strategies can help you keep more of what you earn.
Once you evaluate all of the key areas of your plan, the right strategy will become clear!
I hope this article was helpful! Be sure to check out some of our other articles.
To your next adventure.
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Welcome to the Next Adventure Financial blog, where we share insights for people 50+ who want to lower taxes, invest smarter, and retire confidently.
About the Author
Cody Lachner, CFP®, EA, is a fiduciary financial advisor & retirement planner and founder of Next Adventure Financial in Lafayette, Indiana. He specializes in helping people aged 50+ who want to lower taxes, invest smarter, and avoid costly mistakes in retirement. Cody works with clients virtually across the U.S. and is known for making complex topics like retirement planning, Social Security and tax planning easy to understand.
