Canonical List of Reasons to Start or Defer Social Security

By Alan Silverstein, Fort Collins, Colorado. Email me at ajs@frii.com.
Last updated January 18, 2024

When should you start your retirement or similar Social Security benefit payments? First a very brief summary of considerations:

• Do you need it now? Do you want it now?
• What are you trying to optimize? Personal/family total money received, investment strategy, taxes paid, longevity insurance, legacy for heirs, etc?
• Are you eager to just start sooner and be done thinking about it?

Discussion and longer list: Once eligible for SS (Social Security) benefits (in the USA), in many common cases (retirement, spousal, ex-spousal, and survivor) you can start (take it) sooner, but at a discounted rate for life, or defer (wait for) benefits, to receive a higher monthly payout for life. The usual range for starting SS retirement benefits is ages 62-70; other benefits vary. (Many pensions/annuities also have this feature, but with different age ranges and discount rates.)

There are a remarkable number of valid reasons both for starting sooner and for deferring.

• I've seen many articles or essays that argue one way or the other, and which focus on just a subset supporting their point of view.

• I've also seen writeups listing arguments both ways, aimed at helping you decide, but they don't seem concise or comprehensive.

• Your own decision depends on your personal value factors -- which can change over time, including initially deferring, but then starting sooner than planned.

Here is a hopefully comprehensive list of all the reasons that I could locate (and tease apart) for each alternative, with minimal digression into explaining each one -- you should search for details. You can decide which arguments matter the most to you. My main goal is to help you minimize regrets due to later learning about factors that mattered to you, but you overlooked.

In general, as John Diamant observed: A lot of people start SS too early, and adopt unnecessary longevity risk because they underestimate life expectancy, or otherwise don't understand the complex tradeoffs; or, they buy an annuity when they would be better off instead deferring SS for whichever member of a couple has a higher benefit pending.

Start ASAP (usually age 62)

• Need: You need the money to live on; or you want it so badly, say to retire sooner or to help a relative or friend, that it feels like a non-negotiable need.

• Desire: You want more gratification (purchasing, family support, or donation power) now rather than later, even if you know it's not optimal in the long run. Perhaps the extra money is worth more to you in the "go-go" or "slow-go" phases of retirement than in the "no-go" final phase; or to retire sooner (and get healthier), or even even to "un-retire" by starting a business or a second career. Perhaps you like that you have 12 months to change your mind, pay the money back, and resume deferring. Or perhaps you have young kids who can also get some benefits after you start yours.

• Expiration: You're "swirling the rim" or otherwise suspect you won't make it to your break-even age (see my analysis), and want to maximize your lifetime payout (rather than your monthly benefit later by deferring, see "longevity insurance" below).

• Distrust: You're worried that if/when the SS trust funds are depleted (mainly due to an aging population resulting in fewer workers per beneficiary), your benefits will be cut back, offsetting or erasing the value of waiting. Or you believe that income tax rates will rise in the future, so advancing your taxable income is overall better.

• Multiple benefits: You're eligible for more than one benefit; in some cases, you should start one type sooner, while deferring and switching later (at a higher rate then) to another one. This can apply (within limits) to survivors, and to people old enough for the file-and-suspend strategy (deprecated later) with a higher-earning spouse who can defer and whose later retirement benefit is more than 2x yours now.

• (Re)investing: You think it's better to forego SS payment increases later to get your hands on the money sooner, even though you probably won't spend it immediately, but will invest your extra (net after taxes) income in a way that skillfully or luckily outpaces SS discounts that are significant until age 70. "Are you feeling lucky?" Or similarly, to prevent spending down your existing assets as quickly, giving them more time to (hopefully) grow until you need them (but see below about tax optimization). See also this nice analysis on the breakeven math.

• Legacy: You don't "need" SS now, but you choose to start sooner anyway to maximize your estate value to heirs or charities. This might leave a larger estate than if you deferred longer while living off other assets or income; see (re)investing above.

• Simplicity: The reasons above to "start sooner" are mostly simpler to understand than the reasons below to "defer"; plus, having the decision already made can reduce ongoing tension and uncertainty, and the income stream can feel good, out of proportion to its simple dollar value. But as usual, sometimes simplicity comes at a relatively high "premium cost" (like tax inefficiency or reduced longevity insurance).

Defer Until Age FRA or 70

Some benefit types max out at your FRA (SS Full Retirement Age), while basic retirement benefits grow if deferred until age 70.

• Tax optimization: You (or your spouse) are still working for high wages and/or you have qualified retirement funds (such as traditional 401(k) or IRA) facing large RMDs (Required Minimum Distributions) starting at age 72, 73, or 75 (depending on birth year). Then it's often better overall (minimizing total lifetime tax due) to get taxable pay and/or take taxable distributions/conversions now, rather than (either of you) starting SS payments instead (which are up to 85% taxable), in order to stay in the lowest average or maximum (spike years) of federal (graduated/progressive) income tax brackets for the rest of your live(s).

• Longevity insurance: You want to maximize your monthly payments for life (starting later). Rather than buying "longevity insurance" in the form of an SPDA (Single Payment Deferred Annuity), if you use the same money to live on while deferring SS, you can view SS as a more valuable SPDA (lower expense and risk), including a higher return for waiting (higher discount rate for starting early), plus including COLA (Cost Of Living Adjustments for inflation, which many annuities lack). (COLA are especially important when high inflation is expected.) And average life span is longer than most people guess.

• Survivor benefit: You want to maximize your (ex)spouse's monthly payments for life (a kind of longevity insurance for them, not you). If their PIA is lower than yours, your survivors do better the longer you defer (up to age 70), also the longer they defer taking the survivor benefit (up to FRA); many variables here. And average life span for one member of a couple is longer than most people guess...

• Still working: You're still employed and exceed the SS earnings limit, so your early (pre-FRA) benefits are reduced ("withheld"), and paid back later (if you live that long). (But, improving your earnings history => higher AIME (Average Indexed Monthly Earnings) => PIA (Primary Insurance Amount) is not a reason to defer, you'll get the boost anyway, retroactive to January of the year of the significant new earnings.)

• SSiR: You continue to work until age 70 (or retire sooner, but with a bridge method) as part of the SSiR (Spend Safely in Retirement) strategy, which I summarize as: (1) delay SS, (2) plan RMDs using broad, low-cost funds, (3) budget (project your spending details), (4) explore additional income if needed, and (5) if you have more than enough savings, get creative.

• ACA/Medicare premiums: You (and/or your spouse) are on the ACA, receiving subsidies, which would shrink or vanish, particularly by exceeding 250% or 400% of the FPL (Federal Poverty Line); or, you're on Medicare and near or above the Medicare IRMAA (Income-Related Monthly Adjustment Amount) boundary. Either way, adding more "optional" taxable income like SS to your MAGI (Modified Adjusted Gross Income) can hit you with hidden "tax" in the form of higher insurance costs or premiums (for Medicare, two years later).

• HSA: You're still working, with employer HDHP (High-Deductible Health Plan) coverage and desirable HSA (Health Savings Account) contributions, which are only allowed so long as you don't start Medicare, which is automatic if you start SS at age 65+. (In rare cases, this is an argument for even deferring SS past age 70!)

And what about some of each?

In principle, before age 62 you should pick the "right month to start" for yourself, based on whatever are your personal criteria and values. And then for as long as you are still deferring, if those criteria and values change, be prepared to revise that and start sooner.

But in practice I observe a lot of people (who don't otherwise start earlier, at age 62 or retirement before FRA) "binding themselves" to their FRA, that is, settling on deferring until their SS-defined FRA, then starting. Especially for SS retirement benefits, there's nothing too special about your FRA. So long as you defer, your lifetime monthly amount continues to rise (at a slightly different rate) until age 70 (but retroactive claiming up to 6 months does become possible at FRA). I understand how your FRA is a tangible external reference point that can "feel right", and also simplify the start/defer decision (as mentioned above as one reason not to defer).

DRC timing of starting benefits

If you defer past your FRA (full retirement age, 65-67, depends on your birth year), and for any reason (choice or necessity) you start retirement benefits before age 70, and you care and have a choice, for best results (second-order optimization), apply (up to 4 months ahead) to begin in January (of the year you turn 67, 68, 69, or 70). Why? Because your DRC (delayed retirement credits) of 8%/year (2/3%/month) between FRA and 70 are only applied at the start of each year (unless you wait until age 70, then they're immediate).

Worst case: If you start in July, you permanently lose 6 months of credits (accrued Jan-Jun) for the next 6 months of the year (Jul-Dec), equivalent to 2% (6*6/12*2/3%) of your annual benefit. (Worst because, for example if you start in June, you lose up to 5 months of DRC depending on how long ago was your FRA, for 7 remaining months of the year, or 35 (not 36) x 2/3%; in Feb (or Dec), you lose 1 DRC month for 11 months (or 11 for 1), etc.) Starting in January, if all goes well you lose 0 for 0, because you get the full 12 credits (8%) for last year, and are paid in full every month this year.

Good luck!

PS about calculator tool

You might want to check out this open source tool for playing with your benefits analysis. I've only glanced at it, but others think it's great, and it does look snazzy.