Social Security provides a guaranteed, inflation-adjusted income floor in retirement. The claiming decision — age 62 vs. 67 vs. 70 — is one of the highest-impact financial choices a retiree makes. Delaying benefits increases your monthly payment by ~8% per year, and reduces the withdrawal pressure on your investment portfolio.
Social Security is a U.S. government program that provides monthly retirement benefits based on your lifetime earnings history. For most retirees, it forms the foundation of retirement income — a guaranteed, inflation-adjusted payment that continues for life, regardless of market conditions. The decision of when to claim benefits is one of the most consequential choices in retirement planning.
How It Works
Social Security benefits are calculated from your 35 highest-earning years. The Social Security Administration (SSA) converts your earnings history into a Primary Insurance Amount (PIA) — the monthly benefit you receive at your full retirement age (FRA), which is 67 for most people born after 1960.
You can claim benefits as early as age 62 or as late as age 70:
| Claiming Age | Benefit vs. FRA | Monthly Example (PIA = $2,500) |
|---|---|---|
| 62 | -30% | $1,750 |
| 65 | -13.3% | $2,167 |
| 67 (FRA) | 100% | $2,500 |
| 70 | +24% | $3,100 |
Each year you delay past FRA, your benefit grows by 8% — one of the best guaranteed returns available. After age 70, there is no further increase.
Benefits are inflation-adjusted via annual Cost-of-Living Adjustments (COLAs), protecting purchasing power against inflation risk.
Why It Matters for Retirement Planning
Social Security fundamentally changes the retirement equation:
- Reduces portfolio withdrawal needs: every dollar of Social Security income is a dollar you don't need to withdraw from investments, directly improving success rates
- Provides longevity insurance: unlike a portfolio that can be depleted, Social Security pays for life — a natural hedge against longevity risk
- Inflation protection built in: COLA adjustments mean benefits maintain purchasing power without any portfolio strategy adjustments
- Spousal and survivor benefits: married couples have additional claiming strategies that can maximize household lifetime income
The Claiming Decision
The optimal claiming age depends on several factors:
Delay if:
- You are in good health and expect to live past ~80
- You have other income or savings to bridge the gap
- You want to maximize your survivor benefit for a spouse
- You want to reduce sequence-of-returns risk by lowering early portfolio withdrawals
Claim early if:
- You have health issues that reduce life expectancy
- You need the income immediately and have no alternatives
- You plan to invest the benefits (though this rarely beats delaying)
Interactive chart: social-security-breakeven
Cumulative benefits by claiming age — breakeven typically occurs around age 80
Coming soon
Social Security in Monte Carlo Simulation
In Monte Carlo simulation, Social Security is modeled as a guaranteed income stream that begins at a specified age. This is critical because:
- It reduces the effective withdrawal rate from the portfolio during the years benefits are received
- The claiming age choice affects the entire simulation — claiming at 62 means 8 more years of benefits but at lower amounts, while waiting to 70 means 8 more years of full portfolio dependence but higher lifetime income
- Retirement Lab models income streams with configurable start ages and inflation adjustments, allowing you to compare the impact of different claiming strategies on your overall success rate
For many retirees, delaying Social Security from 62 to 70 produces a larger improvement in Monte Carlo success rate than any portfolio optimization strategy.
Frequently Asked Questions
- When should I start taking Social Security?
- It depends on your health, other income sources, and portfolio size. Claiming at 62 gives you smaller payments sooner; waiting until 70 gives you roughly 77% more per month. For most people with average or above-average life expectancy, delaying to at least full retirement age (67) is optimal. Each year of delay from 62 to 70 increases your benefit by about 6-8%.
- How does Social Security affect my retirement withdrawal rate?
- Social Security acts as a guaranteed income floor that reduces how much you need to withdraw from your portfolio. A retiree receiving $2,500/month in Social Security needs to withdraw significantly less from savings, which can improve their Monte Carlo success rate by 10-20 percentage points compared to someone fully reliant on portfolio withdrawals.
- Will Social Security run out of money?
- The Social Security trust fund is projected to be depleted around 2033-2035, but this does not mean benefits disappear. Ongoing payroll taxes would still fund approximately 75-80% of scheduled benefits. Most planners recommend stress-testing your plan assuming a 20-25% benefit reduction as a conservative scenario.