I'm a Financial Adviser: This Is the $300,000 Social Security Decision Many People Get Wrong

As people age into their 60s, they face a significant decision: When should they claim Social Security benefits and collect monthly payments?

This is not a decision to take lightly. What you do can easily swing lifetime benefits by $200,000 to $300,000 or more.

Yet, many people claim their benefits based not on a careful review of the numbers, but out of fear that Social Security will no longer be there when they're ready to claim it — or on the advice of friends or coworkers — or on overly simple break-even calculations.

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This is a retirement decision you don't want to get wrong.

The cost of claiming too early

As you decide, it's best to understand the basics.

The Social Security Administration assigns everyone a full retirement age based on the year they were born. For most people these days, that's 67, but you don't have to wait that long to claim your benefit.

The government allows you to begin receiving a monthly payment as early as age 62, and nearly one-fourth of Americans do. You can also delay claiming until age 70.

Delaying until 70 can increase your benefit by 8% a year, or by 24% total for someone whose full retirement age is 67.

Claiming the benefit early does the opposite. Your benefit is reduced by 30% for life if you claim at 62. The reduction is less the closer you get to full retirement age, but it can still have long-term consequences. In addition to reducing your own benefit, claiming early can significantly reduce survivor benefits for a spouse.

If you want or need to continue working, you're penalized if you earn too much. In 2025, the annual earnings limit was $23,400. If you exceed that, the government deducts $1 for every $2 you go above the limit.

Once you reach full retirement age, though, you can earn as much as you like with no penalty.

Delaying isn't always right, though

It would be nice to be able to say the definitive answer is: Don't claim the benefit early. As with many things in life, it's not that simple. Sometimes circumstances arise in which claiming ahead of your full retirement age makes sense.

Health problems can sideline you from work. A layoff can do the same. Perhaps you're experiencing cash-flow problems, and an extra boost in income would be helpful, even if it's a 30% cut from what you'd receive by waiting a few more years.

Life expectancy can also be a consideration for some people. If your family has a history of shorter life expectancy, then that could be a reason to file for the benefit early.

However, most retirement decisions don't happen in a vacuum. You must look at the bigger picture and see how everything fits together when you make decisions.

Deciding when to take Social Security is no different. Delaying leads to a higher benefit, but it's not always a viable option for everyone.

More than a break-even calculation

People sometimes try to decide when to claim their benefit based on a break-even calculation. The break-even point is when the total amount you collect by delaying equals the total amount you would have collected by claiming the benefit earlier.

People who approach the decision this way can point out that there are 96 months from age 62 to 70, during which you could be collecting a benefit. The break-even point in that scenario would happen somewhere around age 80.

Basing a decision on the break-even point has its drawbacks, though, with longevity being one. It's not unusual these days for people to have retirements that last 20 or 30 years or longer. In those instances, you want as much money coming in monthly as possible.

Inflation can also come into play. Social Security recipients receive a cost-of-living adjustment (COLA) each year, but those don't always keep up with inflation. As everything becomes more expensive over time, it's better to have the higher benefit.

The spousal and survivor benefits most couples miss

Social Security spousal and survivor benefits are another factor to consider, but many people don't take this into account when they claim early.

If you pass away, your spouse can receive your benefit rather than their own if yours is higher. In that case, the higher your benefit is, the better, because it will last not just for the remainder of your life, but for the remainder of your spouse's life, as well.

Coordinating these decisions between the two of you can be a good move. For example, if one spouse takes the benefit at 62 and the other delays as long as possible, then, regardless of which spouse passes away first, the other will be guaranteed the larger benefit.

Taxes can reduce your benefit

People often don't realize that at least a portion of their Social Security benefits can be taxed, depending on overall income.

For a single person, up to 50% of Social Security is taxable if their combined income is $25,000 to $34,000. Up to 85% is taxable if their combined income is $34,000 and higher. For a married couple filing jointly, up to 50% is taxable if their income is from $32,000 to $44,000. Up to 85% is taxable if their income is $44,000 and higher.

It's important to be aware of this in case you're on the verge of exceeding an income level at which taxes either kick in or go higher.

For example, you might avoid making another withdrawal from your IRA during the current tax year if that money would push you over the threshold, causing you to pay higher taxes on your Social Security.

Social Security should anchor a retirement paycheck

Social Security won't replace your current paycheck — not even close. Generally, it will equal about 40% of your pre-retirement income.

But it does serve as a good anchor for your overall retirement income, supplementing pensions, annuities or any savings you might have. It's often best used to cover essential living expenses as part of a coordinated retirement paycheck strategy.

Regardless of what happens with other investments in the market, Social Security will be there, providing some stability.

A decision worth getting right

Ultimately, the question retirees need to ask is not: "When should I claim Social Security?"

A better question is: "How does Social Security fit into a sustainable lifetime income plan based on my health, spousal needs, taxes, savings and risk tolerance?"

This is a big-picture decision, not one to make in isolation.

Once claimed, Social Security decisions are largely irreversible. That's why it's a good idea to consult with a financial professional who can help you determine what makes the most sense for you.

Taking time to evaluate the full picture can provide greater confidence, security and flexibility throughout retirement.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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