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Jamie Hopkins

Retirement Planning > Social Security > Claiming Strategies

Why Even Wealthy Clients Should Delay Social Security: Jamie Hopkins

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What You Need to Know

  • Recent research finds that delaying Social Security typically leads to higher amounts of assets at death, even for the wealthy.
  • Early claiming strategies tend to fare better with high stock allocations that imply greater volatility — and a bit of luck.
  • Ultimately, delaying benefits provides added security on the downside in addition to higher anticipated average legacy amounts.

Conventional financial planning wisdom suggests that clients with more substantial amounts of wealth may benefit by claiming Social Security early to help protect their portfolios and keep more of their money at work in the market during their retirement period.

However, as noted in a new video posted on the social media platform X by Jamie Hopkins, managing partner at Carson Group, recent research has largely debunked this rule of thumb, and there is a strong argument to be made that many — if not most — clients would be better off from both a legacy maximization and a risk mitigation perspective by delaying their benefits.

In the video, Hopkins cites an analysis published earlier this year in the Journal of Financial Planning by Wade Pfau and Steve Parrish. In the analysis, Pfau and Parrish use real historical return data to directly tackle the question of whether claiming benefits at age 62 leads to greater wealth at death compared to delaying Social Security benefits until age 67 or 70.

In crunching the numbers, the researchers find that delaying Social Security typically leads to higher amounts of wealth at death than claiming it at age 62, even for the wealthy, thereby refuting the claim that it is a good idea to start Social Security benefits early just to keep more dollars invested in the market.

According to the analysis, one key variable in the outcome of any given scenario being tested is the assumed allocation to stocks. Specifically, the early claiming strategy tended to fare better with higher stock allocations. Similarly and as expected, the results of the market-based approach are superior when stock market returns are strongest in the years between when the individual turned 62 and 70.

As Pfau and Parrish explain, the role of sequence of returns risk is key in the analysis. Those individuals who are lucky enough to experience strong returns early in their retirement years will end up with greater lifetime wealth, but the strategy is a risky one. As a purely logical exercise, Pfau and Parrish find, delayed claiming is the proven method for maximizing wealth.

Delaying Is the Safer Bet

As Hopkins points out, the percentage of cases where the legacy amount is greater when claiming at 67 or 70 compared to 62 ranged from about 60% to almost 97%.

“This is a really telling finding,” Hopkins says. “The other thing I found really interesting was that delaying Social Security seems to help insulate clients against the worst-case scenario, in which you see the full amount of the client’s private wealth depleted during the retirement period.

“What this shows me is that there are benefits to delaying on both ends of the analysis — in the wealth maximization effort and the risk minimization effort,” he explained.

Hopkins says it is equally striking to see what it takes for claiming early to work better, “and it’s a pretty narrow set of circumstances.”

“Basically, to really ensure you are going to get this better outcome when claiming early, you need to have a higher amount of wealth, somewhere the realm of $2.5 million or above,” Hopkins notes. “Further, you need to have higher allocations to equities versus bonds, perhaps 75% or more in equities.”

Even in those cases, Hopkins says, between 50% and 60% of the time, this investor will still fall short in terms of maximizing their legacy amount versus the approach based on delaying Social Security. In other words, investors have to be lucky to benefit from claiming early.

“Overall, delaying from 62 to 70 provided a larger net legacy wealth amount at age 95 in 76.3% of historical periods considered,” Hopkins emphasizes. “That’s basically saying that, three out of four times, you’re going to be better off delaying and favoring the spending down of your private assets early on in that retirement period.”

An Underutilized Approach

Unfortunately, as Hopkins points out, the benefits of delayed claiming appear to be lost on many Americans. That is, delaying is not the expected outcome when investors are left to their own devices.

As Pfau and Parrish write, there are significant and easily understood benefits to delaying Social Security. For example, monthly benefits will be as much as 77% larger in inflation-adjusted terms for those who claim at 70 instead of 62.

Still, many individuals decide to claim earlier for a variety of reasons. In some cases, Pfau and Parrish write, these early benefits selections are related to the individual’s personal situation. Some may feel they need the income to support their spending needs, or they have a medical condition that is expected to shorten their life expectancy.

As Pfau and Parrish write, such choices are perfectly rational and may result in “better” outcomes for certain subsections of the U.S. retiree population.

However, there are also many individuals and couples who appear to have sufficient resources to cover their spending needs without relying on Social Security — but they claim early anyway. As the recent analysis and prior research shows, this group is sizable, with only about one in 10 Americans saying they plan to delay Social Security until age 70.

Pictured: Jamie Hopkins 


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