Personal Finance

This Social Security Misconception Could Be Costing You Big Money

Christy Bieber

Published: February 7, 2025 2:02 pm

A Reddit poster recently raised questions about whether online Social Security calculators are taking all of the relevant details into account.

Specifically, the Redditor claimed the calculators are wrong because when you perform break-even calculations to show if delaying a benefits claim is worth it, the calculators don’t take into account the fact that you’re likely taking more money out of your portfolio to delay your benefits. 

While the original poster (OP) is right that you don’t want to drain your investment accounts just to increase future Social Security benefits, there’s actually a lot to think about when it comes to when you should get your first Social Security check. 

Here’s some more detail about the potential misconception with the breakeven calculators, along with some insight into when claiming your benefits is the right move. 

You can’t forget about the opportunity cost of a delayed claim

A breakeven calculator is a calculator that’s designed to help you estimate how many years it will take you to break even if you delay your Social Security benefits claim.

You can claim benefits starting at 62, but each month you delay your monthly payment increases until 70. However, you do miss out on income during the months that you delay.

The calculators are designed to determine how many years of higher monthly payments you need in the future in order to break even or to make up for the income you missed as you waited to claim your larger benefit. The OP’s issue, however, is that you usually have to rely more on investments in order to put off your Social Security claim. 

Say, for example, that your benefit is worth around $20,000 a year. Without that Social Security income coming in, you might have to take an extra $20K out of your retirement account. You would miss out on the returns that you could have earned on that $20K and the opportunity cost of those missed returns changes how long it takes you to break even. You have to make up for those lost returns and the unpaid Social Security checks, so it takes longer than the calculators show. 

Is the Redditor right? 

There’s no doubt that the Reddit user is correct that you need to think about how delaying your Social Security will affect your investment accounts. If you risk draining your account too fast, then you definitely don’t want to delay your Social Security claim because you can’t live on benefits alone. You need both Social Security and savings to support you. 

However, it becomes a little more complicated to say that you shouldn’t put off a Social Security claim because doing so comes at the cost of investment returns. The reality is, there is no guarantee that you will earn those returns. And there is a guarantee that you will get a larger Social Security benefit if you wait. 

When you start your benefit checks early, you reduce the amount of your standard benefit by 6.7% for each of the first three years you claim early and by an additional 5% before that time. If you put off your benefits claim after your full retirement age, you increase the amount of your standard benefit by 8% each year until age 70. Those are guaranteed returns, and you enjoy the higher benefit for the rest of your life.

For many people, taking some extra money out of investment accounts early is well worth the guaranteed ROI that comes from waiting on Social Security– especially since your investment returns are usually a little lower at this age since you need to be invested more conservatively due to the fact you’re close to retirement age. 

Ultimately, you need to consider many factors including your risk tolerance, your investment allocation, your health, and whether your spouse will rely on spousal or survivor benefits. You shouldn’t count on a calculator online to make this decision — you should work with a skilled financial advisor who can offer you the help and support you need to make a truly informed choice.