The trend of delayed claiming of Social Security among the top 10% of earners ended in the first quarter of 2025, according to data presented (and later deleted) at the Social Security Operational Meeting in May.
The shift coincided with Elon Musk calling the program “riddled with fraud” and “the biggest Ponzi scheme of all time.”
In a speech to Congress in March, President Donald Trump said his administration was “identifying shocking levels of incompetence and probable fraud in the Social Security program for our seniors.” He suggested that millions of people older than 100 were receiving Social Security checks.
It's not surprising that many clients are concerned about whether they can count on Social Security in the future. While it may appear that an easy solution is to simply take the money now before the fraud-riddled program blows up, they shouldn’t. Early claiming means giving up tens or even hundreds of thousands of dollars of retirement wealth as well as an important source of inflation-protected lifetime income.
"I’ve spoken at numerous retirement events over the past few months and financial advisors are telling me that their clients are afraid that Social Security won’t be there for them, will get cut or that the program is going bankrupt," Jason Fichtner, former deputy commissioner of Social Security, notes. "All this fear leads to what behavior economists call loss aversion. People are more afraid of losing something now, in this case their Social Security benefits, than they are about the potential gain they’d get later."
The Funding Equation
Social Security is not going to stop making income payments. The program is funded by payroll taxes on workers, and as long as people are working, money will flow into the system and beneficiaries will get paid.
Social Security, though, does face a funding problem. The recently released Trustees Report estimates a 2034 depletion of the trust fund that makes up for the difference between payroll taxes collected and benefits paid. To make up the difference, payroll taxes would have to be increased from 12.4% to 16.1%.
The report also notes that administrative costs of running Social Security are less than 0.5%, an inefficiency level that most private-sector financial companies could only hope to achieve. A recent Inspector General report found that about 0.2% of Social Security checks were fraudulent overpayments. Bottom line: For every dollar put into Social Security, more than 99 cents is paid to a legitimate recipient.
The Case for 70
Economists agree that most Americans, and in particular higher-income Americans, should delay claiming to age 70. In a recent provocative Substack article, Larry Kotlikoff, who created what is arguably the most complex software to estimate the after-tax benefits of delayed claiming, pleads with readers to avoid claiming early to maximize the value of their own Social Security income stream.
Why delay claiming a benefit from an underfunded government program? Why not take the money and run? First, as Kotlikoff points out, if a benefit cut occurs, everyone’s payment will fall by 23% — even those who claimed early. Second, there’s simply no possibility that Social Security checks will get cut by 23%. No politician standing by and allowing such a reduction in Social Security income will get reelected by the growing number of retired baby boomers.
In a recent discussion with Fichtner at the Horizons retirement conference, Andrew Biggs, senior fellow at the American Enterprise Institute, noted that the most likely solution given political gridlock is that the government will simply borrow more to ensure that payments will continue. The longer-term problem remains — the combination of generous entitlements and an aging population will force a day of reckoning on taxes and spending — but a government that prints dollars will continue to make Social Security payments.
The Wealth Foundation
Why is delayed claiming a no-brainer for financial planning clients? First, they can afford to delay — many Americans can’t. Even if they retire before age 70, they can bridge spending until Social Security payments begin from savings. The correct method is to spend from bond-like assets and gradually increase the equity allocation of the tangible retirement portfolio to account for the increase in Social Security wealth.
To understand why delaying Social Security increases total wealth, it is best to use a holistic balance sheet approach that includes the present value of income streams such as pensions and Social Security as well as stocks, bonds, cash and home and business equity. Then split the balance sheet into bond-like and equity-like assets.
Delayed claiming increases the present value of wealth from Social Security. In research with David Blanchett and Sophia Duffy, we find that since higher-income men and women can expect to live longer than the average American, delayed claiming results in an actuarially unfair benefit. A good strategy for politically resistant clients is to remind them that they can stick it to the government by waiting to claim benefits and that the government benefits if they claim at 62.
Retirees born after 1960 get a 5% benefit increase in payments by waiting until age 64, a 6 2/3% increase through age 67 and an 8% increase between 67 and 70. The biggest increases in retirement wealth occur during the first years of the bump in income. For example, the wealth bump is bigger if you delay from full retirement age at 67 to age 68 than it is if you delay from 69 to 70.
Social Security income is so valuable because it rises every year with the value of inflation. An easy way to estimate the present value of a pension is to take the discounted value of monthly income payments to a client’s expected longevity — about age 88 for a healthy, high-income man and 90 for a woman.
Treasury inflation-protected securities yield about 2% less than Treasurys and 3% less than high-quality corporate bonds, so the present value of an equal payment will be greater than a pension or private annuity. Of course, higher TIPS yields will reduce the balance sheet value of Social Security and the spousal benefit will increase the value (especially important for higher earners with younger spouses).
Delayed claiming by liquidating bonds to replace the income from Social Security to bridge income to age 70 reduces the value of tangible bond assets within the balance sheet but increases the present value of future income payments from Social Security by a greater amount. Each year you delay, the value of your retirement balance sheet rises.
The Income Stream
By delaying from 67 to 70, the 24% higher Social Security payment results in a substantially higher income that continues to rise forever (unless benefits get cut, but even if they do the present value is still higher). This reduces the need to withdraw from the investment portfolio to fund lifestyle expenses.
Eventually, the value of tangible investment assets will be higher for the retiree who delayed claiming because the higher income puts less pressure on their investment portfolio. The key, of course, is to increase the stock allocation from the remaining investments to account for the increase in bond wealth from the higher Social Security payment.
Finally, Social Security is an annuity. Recommending delayed claiming to receive a higher lifetime income can give clients the gift of guilt-free spending that will provide a better lifestyle and help them manage inevitable portfolio volatility.
By sticking to the facts, advisors can help clients see through the scary headlines and make better choices about when to claim Social Security.
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