Should I Claim Social Security Benefits at 67 to Invest?

Does the conventional wisdom about waiting to receive Social Security ignore the potential effects of early-claimed investment benefits?

It’s a question financial professionals often hear from their clients, and one Reddit user brought up in a recent thread wondering if it’s better to claim Social Security at age 67 — the full retirement age — instead of age 70 because they can invest.

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Generally, claiming at 70 is more beneficial than claiming at 67 if a person continues to live well into old age (usually the early 80s), experts say. However, the user has the idea that if he can get a “small” return on investment, the equation changes.

If so, “the only way I won’t be better off taking Social Security at age 67 is if I live past 90!” the post reads. “I’m healthy, but that hasn’t happened yet (<50% chance even in healthy 67-year-old non-smokers, according to the report). [an] an online actuarial calculator)."

So, how should you decide when to claim Social Security benefits, and is it wise to rush that timeline to invest?

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The post raises an important point: If a person is able to earn a refund for Social Security benefits claimed at a young age, it may affect the figure around the eligible age to claim.

The decision is complicated, and several factors are overlooked. Joseph White, a portfolio manager at Johnson Investment Counsel, explains that Social Security delays typically cost people about 8% a year. Most importantly, that increase is reflected in the rate of inflation with the annual Social Security cost of living adjustment (COLA), which typically comes in at around 3%.

“Perhaps the most important mistake I see people make in their assumptions is that the 8% return on investment they believe they need to make this work, means NOT including inflation,” White wrote in an email. If someone fails to account for the COLA, their calculations will be off: The actual return on investment they would have to make a claim at 67 with benefits could actually be higher.

Also, during retirement years, investors often change their portfolios to limit risk exposure and protect their savings, often at the expense of higher annual returns. Investment returns are still part of the consideration, but that 8% raise and COLA may outweigh the small return on investment.

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Regardless of how someone plans to spend the money, one major challenge in deciding when to claim Social Security is the unknown life expectancy. Delaying benefits often pays off for people who live longer.

“If they’re really investing those fees, applying earlier becomes more attractive and drives attrition,” White explained.

But in most cases, the benefits aren’t exactly “extra” investment money, says Matt Coursen, relationship manager at Plante Moran Financial Advisors.

“Social Security was designed to replace about 40% of retirement income, and many retirees rely on that monthly check to cover basic living expenses,” Coursen said.

That’s why a Reddit user, or anyone else considering this strategy, needs to think twice before claiming early benefits.