Why Social Security Claiming Decisions Matter More Than Most People Realize
When it comes to retirement planning, few decisions have a bigger long-term impact than when to claim Social Security benefits. Yet despite decades of research, millions of Americans continue to claim benefits as early as possible, often at age 62.
What makes this trend particularly concerning is that many retirees aren't making the decision on their own. They're following advice from financial professionals, friends, family members, or social media discussions that may not fully account for the long-term consequences of claiming early.
The reality is that Social Security claiming is not a one-size-fits-all decision. While claiming at age 62 can be the right strategy for some individuals, many retirees could significantly increase their lifetime retirement income by delaying benefits.
Recent research has raised an even bigger question: Could some financial advisors have incentives that unintentionally encourage retirees to claim Social Security earlier than they should?
The Problem with Default Social Security Advice
One of the most common retirement questions is simple:
"When should I take Social Security?"
Unfortunately, many people receive overly simplistic answers.
Common responses include:
- "Take it as soon as possible."
- "You never know how long you'll live."
- "Social Security may not be around in the future."
- "Take it now and invest the money."
- "Everyone I know took it at 62."
While these statements may sound reasonable, they often ignore critical factors such as longevity, inflation protection, tax planning, spousal benefits, survivor benefits, and overall retirement income strategy.
Most importantly, they ignore the fact that Social Security benefits permanently increase for every year you delay between age 62 and age 70.
For many retirees, delaying benefits can create a substantially larger guaranteed income stream for the rest of their lives.
What Happens When You Claim Social Security Early?
If you claim benefits at age 62, you receive a permanently reduced benefit compared to waiting until your Full Retirement Age (FRA).
For someone whose FRA benefit would be $3,000 per month, claiming at age 62 could reduce that payment by hundreds of dollars every month.
That reduction doesn't disappear later.
It's permanent.
The lower benefit amount becomes the foundation for future cost-of-living adjustments (COLAs), meaning every future increase is applied to a smaller starting number.
On the other hand, delaying benefits allows retirees to lock in a larger lifetime income stream backed by the federal government.
That's one reason many retirement income specialists view Social Security as one of the most valuable retirement assets available.
Why Delaying Social Security Can Be So Powerful
Social Security offers several features that are difficult to replicate elsewhere:
- Guaranteed lifetime income
- Annual cost-of-living adjustments
- Potential tax advantages
- Protection against longevity risk
- Survivor benefits for married couples
Unlike an investment portfolio, Social Security income cannot be outlived.
This is especially important as life expectancies continue to increase. Many retirees underestimate how long they may live, which can result in significant income challenges later in retirement.
For married couples, delaying benefits can be even more valuable because the higher benefit often becomes the survivor benefit after one spouse passes away.
In many cases, delaying Social Security isn't just about maximizing income. It's about protecting the surviving spouse decades into the future.
The Research That Raised Eyebrows
A study published in the Retirement Management Journal examined the relationship between financial advisor compensation and Social Security claiming decisions.
The study analyzed household data and compared Social Security claiming behaviors among people who worked with different types of financial professionals.
The findings were surprising.
Researchers found that households working with financial professionals often claimed benefits earlier than households without advisors.
This result appeared inconsistent with the substantial body of research showing that delaying Social Security frequently creates better long-term outcomes for retirees.
In other words, some retirees receiving professional financial advice were claiming benefits sooner than expected.
Understanding Potential Advisor Biases
It's important to note that not all advisors provide the same advice, and many advisors act fully in their clients' best interests.
However, the study highlighted potential conflicts that retirees should understand.
One possible issue involves compensation structures.
If an advisor charges a fee based on assets under management (AUM), delaying Social Security may require a client to spend down investment assets temporarily while waiting for larger future Social Security benefits.
For example:
- A retiree has $500,000 in investments.
- Instead of claiming Social Security at 62, they delay until age 70.
- During those years, they withdraw money from investments to cover expenses.
- The investment account balance decreases.
If an advisor's compensation is tied to account balances, lower balances may result in lower fees.
Again, this doesn't mean advisors intentionally provide poor advice. But it does illustrate why retirees should understand how their advisor is compensated and whether incentives align with their goals.
Following the Money
One of the most important principles in financial planning is understanding incentives.
Whenever someone gives financial advice, it's reasonable to ask:
"How are they paid?"
Compensation doesn't automatically create bad advice, but it can influence recommendations.
Retirees should understand whether their advisor:
- Charges hourly fees
- Works on a flat planning fee
- Charges assets-under-management fees
- Receives commissions
- Uses a combination of methods
The more transparent the compensation model, the easier it becomes to evaluate potential conflicts.
Why Social Security Planning Requires More Than Simple Rules
The biggest mistake retirees make is assuming there is a universal answer.
There isn't.
The best claiming age depends on numerous factors:
- Life expectancy
- Health conditions
- Marital status
- Spousal benefits
- Survivor planning
- Tax considerations
- Retirement income needs
- Investment assets
- Pensions
- Legacy goals
Someone with significant health concerns may benefit from claiming earlier.
A healthy married couple with longevity in their family may benefit substantially from delaying benefits.
The answer depends on the numbers, not on generic rules.
The Social Security Myths That Won't Go Away
Myth #1: Social Security Is Going Bankrupt
One of the most common arguments for claiming early is fear that Social Security will disappear.
While Social Security faces long-term funding challenges, most projections indicate benefits will continue to be paid, even if future reforms become necessary.
Claiming early simply because of fear may lock retirees into permanently lower benefits.
Myth #2: Everyone Should Claim at 62
Many retirees hear stories from friends who claimed early and are satisfied with their decision.
But retirement planning isn't based on what worked for someone else.
Every household has unique circumstances.
Myth #3: Taking Benefits Early and Investing Them Always Wins
This strategy sounds appealing but often overlooks risk, taxes, market volatility, and longevity.
In many scenarios, the guaranteed increase from delaying Social Security can be difficult to replicate with investments.
The Importance of Comprehensive Retirement Planning
Social Security should never be viewed in isolation.
Instead, it should be integrated into a complete retirement income strategy.
A comprehensive retirement plan considers:
- Investment withdrawals
- Tax planning
- Roth conversion opportunities
- Required Minimum Distributions (RMDs)
- Healthcare expenses
- Inflation
- Long-term care risks
- Legacy goals
- Social Security optimization
When all these pieces work together, retirees often discover opportunities that aren't obvious when evaluating Social Security alone.
Questions Every Retiree Should Ask Before Claiming
Before filing for benefits, consider asking:
- What happens if I live into my 90s?
- How does claiming affect my spouse?
- How much guaranteed income will I have later in retirement?
- Would delaying reduce longevity risk?
- How does Social Security fit into my tax strategy?
- Have I compared multiple claiming scenarios?
- Is my advisor evaluating my entire retirement plan or only investments?
These questions can help retirees avoid making a permanent decision based solely on short-term considerations.
The Bottom Line
Claiming Social Security at age 62 isn't automatically wrong.
For some retirees, it may absolutely be the right decision.
However, many Americans claim benefits early without fully understanding the long-term tradeoffs.
Research suggests that compensation structures, incomplete planning, and widespread misinformation may contribute to this trend.
The key takeaway is simple: don't assume that early claiming is best just because someone says it is.
Run the numbers. Evaluate multiple scenarios. Consider your spouse, your taxes, your longevity, and your retirement income goals.
Social Security is one of the most important financial decisions you'll ever make. Treat it with the same level of analysis and care as any other major retirement planning decision.
Frequently Asked Questions About Social Security Claiming Strategies
Should everyone delay Social Security until age 70?
No. While delaying often increases lifetime benefits, the best claiming age depends on health, marital status, income needs, life expectancy, and overall retirement planning goals.
Why do some advisors recommend claiming Social Security early?
Some advisors may focus on investment assets, personal beliefs, or simplified planning approaches. Every recommendation should be supported by a detailed analysis of your unique situation.
Is Social Security going away?
Current projections suggest Social Security faces funding challenges, but most experts expect benefits to continue, potentially with future reforms.
What is the biggest benefit of delaying Social Security?
The primary benefit is a larger guaranteed lifetime income stream that includes annual cost-of-living adjustments and may provide greater survivor benefits.
Can taking Social Security early hurt my spouse?
Potentially. For married couples, claiming decisions can affect survivor benefits and long-term household income.
How do I know the best age to claim Social Security?
A personalized Social Security analysis that incorporates taxes, longevity, retirement assets, and spousal benefits is typically the best way to evaluate your options.
Daniel Wendol
Item #1
00:00:01
most people claim Social Security early and I would say that most people are probably wrong and they’re probably wrong even if their financial advisor quote unquote financial adviser tells them to take it early I’ve been doing Social Security planning for over a decade I did my first seminar just focused on Social Security claiming strategy just on that one topic I think I did my first seminar on that topic in 2011 gone through all the changes with Social Security and over the years I’ve done
00:00:34
countless meetings with people given Social Security maximization reports to complete strangers and still give them out today and from my experience the majority of the time the best solution is delaying at least not taking it at 62 which is what many do and one of the reasons that people claim Social Security early is because they’re financial advisor their person that they’ve been getting Financial advice from tells them to do so and I know it sounds hypocritical for me to say don’t listen to that but in this
00:01:12
show I’m going to bring some research out that proves that I was right about a lot of this and that there is a problem with bad advice let me bring in my co-host Tony Shore Tony you know I’ve been talking about social security for a long time it’s our most popular topic yep and I’ve said in the past that a lot of financial advisers the default the old school Financial broker the default was take Social Security early and the reasons for that weren’t necessarily in the best interest of the
00:01:46
client but perhaps in the best interest of the financial adviser or it’s just the easy solution or it’s just they don’t know so take it early and you know that people are still taking it early you know this people are still taking it early Dan in fact it’s funny this topic came up you just told me about the topic today we talked before the show but last night uh my wife was surfing on social media as we do Facebook and she said I’ve on this group about finances and somebody posted
00:02:21
asking when they should take Social Security if they should take it at 62 and I was surprised because I’ve heard a lot recently of financial advisers who are fiduciaries like yourself say you really it’s a greatly reduced rate at 62 you should wait and so that’s what I understood uh but on this forum every almost everybody uh there were hundreds of comments and Sarah was going through them and almost all of them said yes you need to take it at 62 take your Social Security as soon as you can and it’s I was surprised by
00:03:01
that why are they saying that and it’s a lot of misinformation um it’s going to collapse so we have to take it while you can that was people were arguing cuz one person then one person said no everybody’s situation is different in fact you’re going to get a much smaller you know they’ve said what we’ve said in the past that you know if you let it you should wait it until your full retirement age and some people had different things you should wait until you’re 70 you should wait there were
00:03:28
like five or six outliers but the rest were all saying and when somebody said no you should wait people said uh nope you got to take it now because you know in five 10 years from now Social Security might not be around and so you’re going to get more money if you take it now and you’re going to get a reduction if that happens and so why not why not get as much as you can now before the reduction comes that was that was one argument right the argument against that is well if everyone’s going
00:03:57
to get a reduction wouldn’t you want a reduction on a higher number um right you’re locking in a lower amount at 62 now I’m not going to spend this show talking about why you should delay Social Security we’ve done shows on it now most popular one is about using your IRA money to delay Social Security which is a problem for financial advisers to say that and I’ve also done shows and I’ll put it up here if those are watching on YouTube we’ve done a show on why you should take
00:04:28
it at 62 that that sometimes makes sense but what I want to talk about today Tony is a study I just read this it came out in 2023 at the end of 2023 and it’s called biased advice the relationship between Financial professionals compensation and Social Security retirement benefit claiming decisions this was in the retirement management Journal volume 12 nove number one now I know you’re not reading the retirement management Journal those watching this podcast are not reading this but I read
00:05:02
this and I’ll put the link on those that want to read it no instead I’m getting a rook Canal uh I could do one or the other and I I chose Rook Canal so but look at this title biased advice question mark and it’s bringing home something I’ve been trying to tell people for years this analysis uses data from 2019 on survey of consumer conf uh consumer finances and it tries to find out if there’s a link between claiming behaviors Social Security claiming behaviors and the use
00:05:35
of a financial adviser and here’s what they found quote households working with a financial professional claimed benefits earlier than those without advisors which is contrary to expectations yeah end quote now contrary to expectations my expectations are you should delay mostly most people would benefit from delaying and when you run the numbers it makes sense to delay and pull from elsewhere to do so especially if you’re married and there’s two people working right somebody should be
00:06:09
delaying and this study all also says there’s plenty of research and data and numbers showing the reasons why it makes sense to delay so when they see that those using a financial professional are taking it early red flags went up they’re like how can that be right real quick you delay because it’s guaranteed by the government for the rest of your life it’s got a cost of living increase which is amazing when you’re trying to create longevity plans and income planning and finally it’s not all
00:06:42
taxed it’s got some tax advantages Social Security is amazing right so delaying it often makes sense well plus if you don’t delay you’re locking in that lower amount and so when they make adjustments later like you said you’re they’re making adjustments on a lower amount you’re locking in a lower amount for life no matter what happens in the future of Social Security and the question becomes well why would a financial advisor tell me to take it early if if it doesn’t make sense now
00:07:11
I’ll tell people to take it early like I said I’ll do that but you got to do the analysis right so assuming the advisor do does the analysis what’s going on here’s another quote the Gap in claiming years for accountant and Banker broker is approximately two years the Gap is two years for households with financial assets of 500,000 or greater which is a staggering difference end quote so they’re saying depending on where you get the advice from is going to depend on what the advice is quality
00:07:44
advice could vary by advisor type and they mention accountants here are the three different advisor types that they talk about number one if they respond that they got their advice from an accountant the assumption is they’re using an hourly financial adviser they’re paying they’re paid hourly to give them advice if their response was financial planner then they assume it’s uh based on AUM or a fee based advisor someone that charges a fee based on investment advice like an
00:08:17
investment adviser like me um or some sort of financial planner someone that charges for advice and three if they said Banker or broker so if I got my advice from the bank or from a stock broker or a registered representative or a financial adviser they’ll call themselves financial advisers the assumption is that they’re commissioned which they are commissions so if you get advice from an hourly person you’re going to delay Social Security if you get advice from a banker or broker or a commission person
00:08:51
you’re going to take it early that’s the me so that’s the fin and the fee even the fee based which are really you know I’ve seen all three and know a lot about this as you know Dan and I I like the fee based the AUM the financial advisor the fiduciaries um but I what I’ve seen with my mother-in-law and what I’ve seen from you talking about is that what happens is they make a fee on how much you have in your IRA in your accounts in the stock market they just make an over fee on how much
00:09:31
money you have and I have seen too many people out there Dan like my mother-in-law’s advisor and my aunt in Omaha her advisor uh that she had for years and years um they told don’t spend any money you can’t spend any money you don’t have enough money don’t spend any money don’t do anything take as much Social Security as you can as early as you can and they’re giving that advice because the more they leave in those funds the bigger their fee is next year if they are pulling money to live
00:10:04
on out of those funds instead of relying on social security while they let it roll up they’re make they’re pulling money out and their fee gets goes down so my mother-in-law is sitting on a huge chunk of cash uh and she’s 88 80 88 years old now and she’s starting to have memory issues um and this guy’s telling her nope you can’t nope you got to hang on to it don’t give any to your kids or grandkids imagine if she imagine if she took social security at 70 imagine if your grandfather took social security at
00:10:37
70 his financial situation would have been a lot different at age 100 right yes it would have so there’s two biases and you just you just nailed one on a head bias number one when you’re getting advice from a financial person like me yep there’s a bias delaying claiming reduces assets that could provide current or future compensation to the financial adviser you just said so if I’m charging AUM fee assets under management fee a 1% fee on whatever I’m managing someone comes to me and they
00:11:09
say Dan here’s $500,000 this is what I have to my name and I say okay I’m gonna invest that for you and I’m G to charge you 1% to do so every year and then they say what do we do about social security I’m gonna have that question answered before I even know how much money they’re going to put with me I’m going to give them the Social Security answer because that’s how you build the soci that’s how you build their income based on their personal information you
00:11:33
find out that first but if I if I’m doing the math for myself it makes sense for me to tell them to take Social Security early because I get to put all 500,000 or more or whatever it is into and charge by 1% but if I say no we’re going to delay social security for five years and during that time you’re going to take $50,000 a year out of your assets so you’re going to take 250 ,000 of your 500 out to live to get to the point where Social Security is maxed out how does that help me as a financial
00:12:08
advisor yeah it doesn’t not it does not My Philosophy is it helps me in the long run because they’re happier and then once that Social Security comes on there’s so much less that I have to worry about which brings up bias number two delaying claiming May reduce the complexity around Financial Funding retirement Poss decreasing the need for ongoing Services of financial advisor so if you delay Social Security and you’re creating that pension you think about it someone that has a
00:12:38
pension like my father my father does not need a financial advisor he doesn’t need someone to manage his money because he doesn’t have any all of his assets are either so security or his pension he doesn’t have assets and those are known those are known factors right so there’s nothing to figure out they’re there you don’t what am I going to do what am I going to now I can help them with some other things financial planning wise and debt management so on sure spending but
00:13:02
it come when it comes to True Investments you know he’s got nothing but what’s wrong with spending down your assets to get Social Security we did the whole show on that yeah what’s wrong with that it’s wrong for the financial advisor so here’s what they found quote households with financial advisors paid hourly appear to be making decisions that are consistent with client’s best interest but households with financial advisors paid on commission are making the opposite decisions end quote
00:13:35
regarding Social Security regarding social I mean there’s a lot of just let’s not paint a picture where people are better off going with an hourly person to help them with their finances because they’re not they’re not typically fiduciaries and they can’t help them with the big picture they’re going to look at smaller hourly advice people are fiduciaries an hourly if you’re paying a financial advisor an hourly fee I charge an hourly fee well but not many people like it because they
00:14:02
don’t like the fee they don’t like paying someone 300 bucks I thought you said they were accountants not advisor in this study they said they were accountants that’s how they did it so there’s a little bit of problem there if they talked about if they just said hourly I get my advice hour I didn’t know fiduciary’s charged an hourly rate oh yeah so there’s different ways I could charge I could charge to do a project here let me let me figure out uh what am i g to do about Roth you also do
00:14:26
fee based right so I do both so I do hourly if people want that I also will do a percentage of what I manage but for someone that doesn’t have managed assets or someone that says I want to do it myself or someone that says Hey My son is a financial investment guy I’m giving him my money but what do I do about social security what do I do about Roth conversions um you could pay someone hourly to give you advice sure okay right makes sense now what about someone like me who is fee based
00:14:57
there is no notable effect among clients of fee based advisors such as financial planners who whose claiming age is not materially different than households without an advisor so what they’re saying is our you know registered investment advisers certified financial planners like me um they are giving the average is they’re getting the same decision that someone without advisor is making about social security there’s no not noticeable difference and what I say well right I’m thinking there’s going to
00:15:31
be those that aren are ignorant I’m talking about financial and not everyone’s a financial advisor they say they are they just passed a fiduciary rule which is going to take effect in September of 2024 be ready for that so anyone giving advice on an IRA or a 401k is required now to be a fiduciary which they were not before so this might start changing right but there are people that say they’re financial advisors and so the survey respond is my guy’s a financial planner probably not right my
00:16:01
my guy’s a financial planner and so they’re still telling me to take it early again um and then you have people like me that are telling people to delay mostly so we kind of balance each other out most people um without an adviser still take it early so bottom line is people taking it early it’s like over 80% of people who file for Social Security do it at the earliest age of 62 I I’ve read that well it’s they take it before their full re in an age of 67 oh okay that’s it I think close to
00:16:32
half take it at 62 yes still St I think it’s over half yeah again it’s not necessarily the wrong decision but what I’m saying not for everybody but for the majority of them it probably is the wrong decision but it’s based on their personal situation emotions history of their family pure pressure misinformation and so they say well I’m going to go to the financial person and get that advice you can’t do that either you have to make sure that the financial person is aligned with
00:17:01
your interests so when I see someone that says oh my financial guy you know what often happens to me Tony someone will come to a seminar on Social Security and they’ll say to me hey I need help figuring it out they’ll want to meet and they’ll want the Social Security maximization report and then they’ll say why didn’t my current advisor tell me this or when I ask my current adviser he says I don’t know you when you figure it out let me know because I’m 62 right because there’s
00:17:29
there there’s these Financial people that are focused on investments only they’re not thinking about the bigger picture right and those are the people you need to watch out for I’m not trying to throw Financial people under the bus because it’s some advice is good but not just because you’re getting advice you got to be careful that where it’s coming from and how they’re getting compensated are they looking out for your best interests that’s the big question and this study shows that it’s not so
00:17:54
research is showing that financial advisors are biased and it’s based on their compensation follow the money and they’ll say take it at 62 even though that may not be in your best interest now the issue is especially with Social Security planning no one knows right life expectancy is a big factor on this but if you’re not having that conversation and you’re not running some numbers and seeing the trade-offs and mapping it out and thinking about taxes and thinking about longevity
00:18:26
and thinking about cost of living increases if you’re not having that if it’s just oh take it early because you know tomorrow’s promised to no one or take it early because the government’s going to collapse or take it early because you know that’s what I did and it works or take it early and we’ll invest the difference we did a show on that let’s take it early and invest the difference CDs are paying five and a half let’s you know um again not the best logic but when a financial person
00:18:56
adviser quote unquote is telling you to do it you feel confident and I’m sorry to say that maybe you shouldn’t yeah but I’ve been saying this for a while and um it’s kind of like the dirty secret in the financial services industry is hey you know just like with annuities are another example because it’s a pension right take your money out of my control as a financial advisor and plop it into an income stream plop it to create a pension plop it into an annuity getting you a fixed
00:19:29
straight like a CD take your money and buy a CD how does that help the financial advisor does not so what do they do oh yeah CDs are stupid fixed rate annuities those are dumb you’re going to lose you’re not GNA keep up with inflation but I can get 6% I Can Do Better can you well the Market’s done eight and a half perc in the past 10 years has it will it so again understand who’s giving you an advice and why and question it and if you question your financial adviser and
00:20:09
you get push back they make you feel silly belittle you talk over you got the wrong financial advisor if someone pushes back on me why my decision is made I give them the numbers and the facts and the reason and again I say the choice is ultimately theirs but in my professional opinion this is what I would do and this is my recommendation and a lot of times it’s to delay Social Security not take it early right there it is Tony I just threw some financial advisors under the bus well deservedly so yeah but I got
00:20:44
the research to prove it now huh I wonder if this will get the make the rounds on the CNBC or Fox Business News probably not probably not Jim Kramer is not gonna be out there telling people but again Jim CR those are investment those are not financial planners no Talking Heads Are they are salesman or they’re in they’re Securities guys they’re stocks they’re stocks and bonds guys you know yeah so Tony thanks for telling me the story about what your wife and thanks for standing up and telling your wife no
00:21:24
don’t listen to those people yeah we need to get we but you’ve seen it you’ve heard it over and over again I mean we’ve talked about this how many times so you knew but think about it the peer pressure on Facebook or Instagram whatever of why to take Social Security early it’s real yeah I felt sorry for the five or six people that were saying no everybody’s situation is different don’t talk like that that’s too for some it’s G to work it’s better to wait until you’re 70 no Social
00:21:52
Security will be gone by then right we’ll all be dead by then why bother right so tell that to my grandfather who lived to 101 exactly yeah then again I again it makes sense to take it early for some people too so there’s no right answer there’s no blank he took it at his full retirement age he should have waited until 70 but for him that was 65 I think and back then that was a big deal to wait that long yeah it was thanks for a good show Tony um sorry that I had to go through another social security
00:22:28
discussion but there popular and they make sense and they’re yeah well you got to you got to get it out there the truth the truth can hurt the truth prevails we’ll see everyone next week all matters discussed in today’s show are for informational purposes only this show is not investment advice Dan with nor dolphin Financial Group are affiliated or endorsed by any government agency investment advisory services are offered through Dolphin Wealth Management Inc a registered investment
00:22:55
adviser in the State of Florida Insurance products and services are offered through Dolphin Insurance Inc Dolphin Wealth Management Inc and dolphin Insurance Inc are affiliated companies doing businesses as Dolphin Financial Group you should talk to someone at Dolphin Financial Group before implementing any of these strategies or ideas