Three case studies presented in Allspring’s new 2025 retirement study highlight an important point about optimal Social Security claiming: The size and location of additional assets expected to complement Social Security income should directly inform clients’ claiming decisions. So should a client’s projected longevity, with better longevity generally encouraging delayed claiming where possible.
The report, which also includes sections about retirement savers’ use of target-date funds and both employers’ and workers’ expectations for how artificial intelligence technology will affect their financial planning behaviors, details that current retirees depend on Social Security for about 40% of income on average.
Despite the importance of their benefits for long-term financial security, near-retirees are broadly uninformed on basic but important aspects of claiming. For example, most near-retirees are unaware that delaying Social Security benefits from age 62 to 70 increases monthly benefits by nearly 80%.
Helping near-retirees and retirees understand their future tax burdens and make more informed Social Security decisions, according to the report, are among the most cost-effective ways to improve retirement outcomes.
“Asset location can be as important as asset allocation,” the authors point out. “By keeping lower-tax-exposure investments in taxable accounts and higher-tax-exposure assets in tax-deferred and tax-exempt accounts, retirees are better able to control their taxable income in retirement.”
Claiming Scenario 1: Limited Additional Savings
The first case study examines a theoretical married couple, Bill and Carole. Both are age 67 with limited savings outside of their anticipated Social Security benefits.
The couple has $60,000 saved in a taxable investment account, along with $180,000 in a traditional individual retirement account and another $60,000 in a Roth IRA. Their combined projected full retirement age Social Security benefits are $48,000. Compared with their projected annual spending of $55,000, this leaves a $7,000 year-one income shortfall to be funded by the private accounts.
While the couple could choose to delay claiming beyond age 67 to start to close that income gap, the math shows that this likely isn’t necessary. If the couple is assumed to have low longevity, in fact, such a course of action could be suboptimal.
“With limited savings, they should consider claiming Social Security now, funding the $7,000 shortfall from their taxable investment account,” the report suggests. “Since their taxable investment account is invested predominantly in tax-preferred U.S. Treasuries, Social Security is their only taxable income. No tax would be due and the bulk of their deductions are wasted.”
In this scenario, the couple even has an opportunity to convert a portion of their traditional IRA to a Roth IRA with no tax cost. This strategy leverages the temporary $6,000 senior deduction (available for four years) and flattens future tax burdens by shifting funds to a tax-free Roth environment.
Claiming Scenario 2: A Little Older and Wealthier
The second case study examines another theoretical married couple, Scott and Lauri. Both want to retire now and claim Social Security at age 68, and they have a moderate amount of private savings with which to complement Social Security income. Their spending needs are higher, however, adding a layer of complexity to the math.
The couple has $180,000 saved in a taxable investment account, along with $330,000 in a traditional individual retirement account and another $90,000 in a Roth IRA. Their combined projected delayed Social Security benefits are $73,000, but this won’t kick in until their second year of retirement. Compared with their projected annual spending of $80,000, this leaves an $80,000 shortfall in year one and a much smaller recurring shortfall thereafter.
In this case, delayed claiming by a year does have some benefit, according to the report. That is, their moderate savings allow them to safely live off private funds from their taxable account that is mostly invested in equities and tax-preferred U.S. Treasurys. Taxable funds generated from this account are largely qualified dividend income and long-term capital gains, which can be timed and offset with losses.
“Unless they withdraw from their IRAs, they'll have no other taxable funds until they take Social Security distributions,” the authors point out. “Prior to taking Social Security — and while they're eligible for the senior deduction — they should consider IRA to Roth conversions to take advantage of the full deduction, leveraging the temporary deduction and flattening future tax burdens.”
Claiming Scenario 3: Higher Income and Higher Spending
The final case study looks at the situation facing a wealthy couple, Sean and Stephanie, who are both 63 and eager to retire.
In this example, the couple has $700,000 saved in a taxable investment account, along with $1.2 million in a traditional individual retirement account and another $300,000 in a Roth IRA. Their combined projected delayed Social Security benefits are $98,000, an amount that will be complemented by $90,000 in additional income from ownership of a rental property.
Sean and Stephanie will need to spend about $200,000 per year to maintain their desired lifestyle in retirement, meaning that they start with a $110,000 annual income shortfall when entering retirement. This shortfall will fall substantially, however, once Social Security kicks in.
In this case, the couple’s significant savings and other income from rental property, combined with a family history of longevity, suggest delaying Social Security and starting retirement by drawing additional funds from their taxable account and IRAs.
“Because their taxable assets are a mix of equities and tax-preferred U.S. Treasuries, funds generated from this account are mostly tax-exempt, qualified dividend income, and long-term capital gains,” the authors point out. “Because their taxable income is relatively easy to manage, they may opt for a small Roth conversion before age 65.”
Their opportunity for tax-efficient Roth conversions expands in two years if they become eligible for the senior deduction (subject to income limitations).
Key Conclusions
While each couple considered has a variety of acceptable options in timing their Social Security claiming to balance current income needs and longevity risk, the examples all show how tax-efficient withdrawal strategies can greatly affect retirement outcomes overall. The results suggest that younger savers should consider pursuing more tax diversification in their savings accounts.
“Blindly defaulting into drawing taxable funds first can lead to higher taxes and lower after-tax income in later years,” the authors note. “Many taxpayers will benefit from taking a mix of taxable, tax-deferred, and tax-exempt distributions to flatten their income tax burden over time. Individuals should customize the withdrawal plan to minimize taxes and optimize income.”
As the authors conclude, this is an area where advisors can have a big impact.
Credit: Chris Nicholls/Touchpoint Markets
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