6 Types of People Who Should NOT Take Social Security Early

Claiming Social Security may be one of the most important financial decisions you'll make in retirement, but should you take it as soon as you're eligible? 

In this episode, Austin Wilson, Jessica Hinks, and Jordan Shaw discuss six types of retirees who may want to think twice before claiming Social Security early. From higher-earning spouses and healthy retirees to tax-conscious investors and those planning major life changes, the team explores the factors that can impact your claiming strategy and how the right decision can affect your retirement income, taxes, and long-term financial security. 

For the full video, show notes, and transcript, visit thewealthmindsetshow.com/s2e39

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Transcript

You’re listening to The Wealth Mindset Show, where Hixon Zuercher Capital Management’s team of finance professionals, portfolio managers, and a life coach come together to tackle complex topics in finance and retirement planning so you don’t have to. From investment strategies and wealth management, to tax planning, retirement income, and aligning your money with your values and purpose, the Wealth Mindset Show offers the tools to thrive. 

Austin Wilson: 

All right. Hey, hey, hey, welcome to The Wealth Mindset Show, where the Hixon Zuercher team will have conversations on managing wealth, navigating retirement, and making smart decisions for a secure, meaningful future. I’m Austin Wilson, Chief Investment Officer at Hixon Zuercher Capital Management, and I am joined with my esteemed colleagues, Jessica Hinks and Jordan Shaw. They are advisors here at our firm, and they are the smart people I go to when I have financial questions like, what is Social Security? Which is what we’re talking about today. That’s actually not what we’re talking about, but it is around Social Security. So Jess, Jordan, what’s up? 

[0:57] – Life Updates: Sunny Days & Jessica’s Pond 

Jordan Shaw: 

Yeah, a lot is up. Sun’s out. 

Austin Wilson: 

Sun’s out. 

Jordan Shaw: 

The temperature’s up, so we’re outside a lot. 

Austin Wilson: 

Our neighbor finally mowed their grass. 

Jordan Shaw: 

Neighbors are finally mowing. 

Austin Wilson: 

Yeah. 

Jordan Shaw: 

Yeah. 

Austin Wilson: 

Knee high by the 4th of July doesn’t really count with grass, but they thought it did. 

Jessica Hinks: 

My first one over here doesn’t even trim his bushes until they’re gangly in the lawn, so. 

Jordan Shaw: 

I finally did. I’ve only been there a year and a half before I finally trimmed my hedges. That’s true. 

Austin Wilson: 

All I’m saying is, your house is in the top quartile of outward appearance in the neighborhood, so. 

Jordan Shaw: 

It’s always, if you take one thing away from this podcast, compare yourself to others and you’ll be happy. 

Austin Wilson: 

Yes. Well, we tell people to go against do that. But yeah, sun’s out. It’s beautiful, man. 

Jordan Shaw: 

Yeah, it’s great. We’re outside a bunch. Right now we’re building our own little playground in the back. We have all these single additions to it. We have a swing that’s standalone. We have a slide that’s standalone. We have a little house that’s a standalone. Bought it separate times and separate themes to all of them. So it’s like a little mashup little playground thing, but when you’re three years old, you don’t care. So, it’s fun. 

Austin Wilson: 

You don’t care. You don’t care. Jess, what about you? 

Jessica Hinks: 

I’m getting my tilapia delivery this week. All I talk about is my pond. 

Austin Wilson: 

Not for the freezer, this is for the pond. My personality has become pond. Hi, I am pond. That is what I talk about now. 

Jordan Shaw: 

I was thinking you actually meant for the freezer. And it was like this big thing. 

Jessica Hinks: 

No. 

Austin Wilson: 

At the end of the year, you can eat them. 

Jessica Hinks: 

They’re going to be swimming. 

Austin Wilson: 

Yeah. You got to have them to keep the pond clean. 

Jessica Hinks: 

Eat the algae. 

Austin Wilson: 

Yeah. How many are you having? 

Jessica Hinks: 

20 pounds, four to five adults per pound. 

Austin Wilson: 

Okay, yeah. That’s not an insignificant amount of fish. 

Jessica Hinks: 

Maybe I’m saying that wrong. Don’t quote me on that. All right. 

Austin Wilson: 

The fish expert, Jessica Hinks. Awesome. Well, yeah, same for us. Outside time is certainly awesome. Kids are wanting to be outside playing in water table if it’s really hot, water table, even if it’s not hot, and I’m like, it’s a little cold for that. And then the swing set all day long, so it’s a pretty good time to be a kid. For us, we get to look at the fluorescent lights a lot and it’s great, but a lot of time off coming up this summer and enjoying some time with family. 

So today, Social Security, I kind of alluded to it. It’s one of the biggest financial decisions a retiree can make is when to take it, how to take it, all this other stuff. But we’re going to be talking about types of retirees who should not claim Social Security early. And there’s really about six that our advisors have come up to about that. So without further ado, let’s talk about retiree number one who should not take Social Security early, that would be that of the higher earning spouse. 

[3:30] – Retiree #1: The Higher-Earning Spouse 

Jessica Hinks: 

To back up a little bit, Social Security is one of the hardest questions I think we deal with, because the vast majority of Americans have to claim it. And sometimes even mathematical analysis, different kinds can give you different answers as far as when’s the best time to claim. And so if we do an analysis one way or another way, we actually might come up with different recommendations. But with the higher earning spouse, this really comes down to understanding the spousal benefit. And I don’t want to hog the mic. So Jordan, do you want to explain the spousal benefit? 

Jordan Shaw: 

Sure, yeah. So the spousal benefit allows for when the spouse claims, so this would be someone who would have a lower retirement benefit than a higher earning spouse. What they do is they calculate between the two benefits, your primary retirement benefit or half of your spouse’s benefit, and whichever is higher is the benefit that you’re entitled to. So if half of your spouse’s benefit is more than your own benefit, that’s called your spousal benefit. And oftentimes we’ll see that, especially if one of the spouses has not paid into Social Security or perhaps has been someone who’s worked at home or raised kids at home and hasn’t had that career of paying into Social Security, that benefit can be significant. 

Jessica Hinks: 

Yeah. So the premise is if you’re the highest earner and you feel like perhaps your spouse has greater longevity than you, especially if your spouse is a woman, women tend to live longer, maybe you should postpone claiming until your benefit gets larger. Every year you wait claiming it gets bigger by 8%. And if you pass away, your spouse gets to assume the largest of the two benefits. 

It actually can come into play when your Social Security is similar in size. So if you and your spouse have both worked and you have similar income levels, your Social Security benefit’s probably going to be about the same. Imagine the blow if one of you passes away in retirement and now not only are you losing the small Social Security benefit, you’re actually probably losing 50% of your household income. 

Austin Wilson: 

Right, right. 

Jessica Hinks: 

Right? And so you might even want to consider staggering if you have similar social securities, where one of you claims earlier just to start accumulating some kind of benefit from Social Security and one of you perhaps postpones to 70. That way, should one of you pass away, at least a higher benefit gets to be there. 

Austin Wilson: 

I think that when you talk about claiming Social Security, it does remind me in a lot of ways to many other conversations about finance that we have is, there’s the benefit today versus the benefit in the future. And you’re always either pulling forward things to enjoy today, which is great, and then when you’re retired, you don’t know how long you’re going to live or your spouse is going to live. Or, you’re postponing it and deferring it and going to have larger amounts in the future. It’s just a matter of determining what’s more important, because then the math is the math and we can determine the math a couple different ways like you talked about, but it’s just, do you want to have it now, do you want to have it later? And those are the two levers you’ve really got to pull. 

[6:34] – Retiree #2: The Person Still Earning Solid Income 

Austin Wilson: 

So, that was retiree number one who should not… Retiree number two, the person still earning a solid income. What’s that mean? 

Jessica Hinks: 

Go ahead. 

Jordan Shaw: 

Sure, yeah. So in this case, if you’re earning a solid income, you have plenty to provide for your needs. Perhaps you don’t actually need to claim. Right? So if you’re under full retirement age, you earn more than 24,000, Social Security will actually withhold $1 in benefits for every $2 earned above that 2026 limit of 24,480. It’s not permanently taken away, it is given back later through a recalculation, but it’s one of those things that oftentimes makes it not as beneficial or favorable to claim when you’re also receiving a good income. 

Jessica Hinks: 

Very regularly, I have people ask me who are full-time employees and they say, “I’m 62 now. Should I just go ahead and claim Social Security just so I can start getting something? Right? I’m not leaving money on the table.” And if you’re working full-time or getting above that limit, my answer historically has always been no. And they might say, “Why?” One, you lose that in the benefit. But two, Social Security is not made for that. It’s not meant to supplement the income of the gainfully employed, and that’s why that penalty exists. It’s not because Social Security is the worst, it’s to help it fulfill its mission, which is to support people who don’t have an income. That’s not a recommendation for you, by the way, it’s just what I’ve always had said historically. So, take- 

Austin Wilson: 

Generally speaking, it works out that way. 

Jessica Hinks: 

I’ve literally not ever said that, but still. 

[8:12] – Retiree #3: The One Who’s Healthy & Under 70  

Austin Wilson: 

No, that’s a good thought. So that is number two. Number three, what about someone who’s healthy and under age 70? Why would that not be a reason to claim Social Security? 

Jordan Shaw: 

This one comes down to what you were saying earlier, Austin, being trying to plan ahead and look into the future. So in most of the analysis that you can run, different numbers that you can crunch, expecting to live into your mid 80s and beyond will typically give you a larger total lifetime benefit from Social Security if you delay as long as possible, which is age 70 with current law. So, that’s typically why if you’re healthy and you’re expecting to live that long and you’re not going to be depleting all your other resources while you delay, waiting until that age 70 timeframe makes sense. 

Jessica Hinks: 

And one of the worst things that can happen to a retiree living off their portfolio is that they live a long life. And that always seems counterintuitive, but longevity risk is a real thing. And so if longevity is on your side, like Jordan mentioned, you should consider it. Right? Now there is sometimes family history where it makes it clear that’s not the case. Sometimes I have clients come in and say, “Listen, all the men in my family died before 70. They never even got to retire and I want a different outcome for myself.” So, that’s something to consider as well. 

I also just recently learned from a client actually, the average age of death in America, not the average, the median, the most common. 

Austin Wilson: 

Median, the middle. 

Jessica Hinks: 

The most common age people die is actually age 87. 

Austin Wilson: 

Really? 

Jessica Hinks: 

And since that breakeven age for when it becomes most worthwhile to delay claiming Social Security is in your low 80s, there is some argument for it. 

Austin Wilson: 

Yeah. And that’s another reason why a lot of financial planners plan a little longer to be conservative because they take a little bit of the variability out of the equation. So like when we’re doing a retirement projection, we’re not planning typically for 70, 75, 80. Usually it’s 90, 95, some people use 100. Well, theoretically, you could have a lot of people live to 100 and then statistics of one spouse living to a certain point is even longer than both. So, that’s why conservative planning is helpful there. So yeah, that’s a good one there. 

Hey there. We’re going to take a quick pause in this episode. Before we get back to today’s topic, I want to take a quick moment to share something that could really help you on your retirement journey. At Hixon Zuercher Capital Management, we are all about making sure your financial life aligns with what truly matters to you. That’s why we created the assessment, Are you Retirement Ready, over at hzcapital.com/quiz. It’s a quick and easy quiz that helps you figure out how prepared you are for retirement. It only takes a few minutes, and you might discover some great insights into what you need to do before you retire, both in the financial and non-financial aspects. So if you’re curious about how ready you are to embrace this new phase, head on over to the website and check it out. Again, that’s hzcapital.com/quiz. Now, let’s jump back into our conversation. 

[11:26] – Retiree #4: The Wealthy Person Who Doesn’t Need the Income Yet  

Austin Wilson: 

Well, number four, retiree number four who should not claim Social Security early is the wealthy person. So I know where this is going to go, who doesn’t need the income yet. Why is that? 

Jordan Shaw: 

Well, this goes to the point we made earlier of, what’s the purpose behind it, right? There’s the spirit of Social Security, but it’s also if you have sufficient savings, delaying it, it’s like a guaranteed return on how that benefit grows. So if you’re set outside of that fixed income portion, there’s really no need to dive right in and start drawing from something when the benefit years and years down the road total for delaying a few more years could be a good bit. 

Jessica Hinks: 

Yeah. However, though, there’s the big caveat, right? Because I see some people with $1 million, even a $2 million nest egg who are not in good straits if they delay Social Security because their living expenses, their withdrawal to put too much pressure on their portfolio. So for everyone’s number for how big their portfolio needs to be before they should delay or not delay is a little bit different for everyone. 

And if I ever make a recommendation to someone who’s more well off that they should wait to claim until 70, I always say, “You can change your mind at any time.” Right? So if you get to be 68 and we go into a massive bear market and for whatever reason you don’t have your bond portfolio to support withdrawals any longer, you can just say, “You know what? I’m going to claim now. And I’m going to let my stocks recover.” 

Austin Wilson: 

Right, buffer it. 

Jessica Hinks: 

“And get a lot of my paycheck for my Social Security.” So it’s quick to claim, it is not a permanent decision. There is a one year undo button, by the way. 

Austin Wilson: 

There’s an undo button. 

Jordan Shaw: 

There is. 

Jessica Hinks: 

If you claim Social Security and you regret it later, you can undo it within a year. You just got to pay it back. 

[13:14] – Retiree #5: The One Planning a Major Lifestyle Change 

Austin Wilson: 

Another one, retiree number five who should not claim Social Security early, is the one planning a major lifestyle change. What do you mean by that? 

Jordan Shaw: 

Yeah. So this comes into all the other… There’s so many unknowns that we’re trying to plan for, right? The unknown of how long you’re going to live, the unknown of what the portfolio is going to do in the interim between now and claiming. So if you’re adding more unknowns to that, there’s a potential relocation, there’s a potential job change, there’s potential to go on some big vacations or whatever the next couple years might be, there may not be a need. In fact, it might benefit you to hold off on claiming because maybe you realize after that change happens that your situation is a lot different for the better. Maybe you really don’t need that additional income like you thought you might have before the change, so. 

Jessica Hinks: 

Maybe if you move, you realize you might want a part-time job in your new town. 

Jordan Shaw: 

Absolutely. Yeah, and oftentimes these are things that you at least are starting to think about in terms of sometimes something will just sporadically happen and oops, I claimed and I didn’t need to. That’s when maybe the undo button comes into play, but if you’re really starting to think through some bigger life changes, maybe hold off on Social Security would make sense. 

Jessica Hinks: 

I just never encourage anyone to make a major cashflow decision during a period of transition- 

Jordan Shaw: 

For sure. 

Jessica Hinks: 

… without a lot of though and planning going into it, not just Social Security. 

Austin Wilson: 

Yeah, 

Jordan Shaw: 

Absolutely. 

[14:41] – Retiree #6: The Tax-Conscious 

Austin Wilson: 

So last but not least, retiree number six who should not claim Social Security early, the tax conscious. 

Jessica Hinks: 

Do you know my favorite type of client that comes in here? 

Austin Wilson: 

The tax conscious? 

Jessica Hinks: 

Yes, but sometimes they don’t… Sometimes there is just a piece of art that walks in. They don’t know how much potential they have. They retired at 60. They’re 60 now, they’ve come into our office. They don’t have any sources of income right now. Social security’s not kicked in, they don’t have a pension. They’ve just been living off some brokerage assets and maybe a little bit of an IRA distribution here or there. The amount of tax planning you can do is phenomenal. And if they’ve not claimed Social Security yet, you usually have so much room and favorable tax brackets. You can realize capital gains at 0%. I mean, zero dollars. 

Austin Wilson: 

Zero is great. Zero’s the best tax rate. 

Jessica Hinks: 

That’s my favorite number. 

Austin Wilson: 

Yes, please. 

Jessica Hinks: 

Zero is my favorite number. You can do Roth conversions and then you have to get into pre-Medicare planning, which I’ll let maybe you get into, Jordan. But yeah, if you don’t have a lot of extra income that’s superfluous like Social Security, so much potential. 

Austin Wilson: 

We like zero or low. Zero or low tax brackets, please. 

Jordan Shaw: 

Yeah. Zero, 10, 12, 15. Anything in the teens, if it’s not old enough to drink, if that’s the percentage taxes that you’re looking at. We like that. We like that. Typically, and people like that when they’re looking at it, clients enjoy seeing, okay, I know what rates I’m locking in now because the future has all those unknowns. 

Austin Wilson: 

True. 

Jordan Shaw: 

And the future has potentials of just climbing RMDs, required distributions, climbing tax rates. So when there can be some tax savings now in this rare window like you mentioned, Jess, with clients who are earlier or average maybe retirement age but not claiming yet, there’s a lot of potential. 

And to the point of the pre-Medicare planning, these are things that even as advisors, we have to remind ourselves, oh, this is also something that we have to look at because it’s a couple years out. If they are 60, there’s a few years until Medicare kicks in. But even before age 65 when Medicare kicks in, you have to start planning a few years back for what’s called the income related Medicare adjustment amounts. That’s a surcharge that gets added to your Medicare premiums based on your income from two years prior. So if you’re age 63, what you’re doing for tax planning matters when you’re looking ahead two years from then claiming Medicare, and it can be significant. So if you’re receiving a bunch more income because you claim Social Security early, whether there’s some other benefit outside of taxes that you’re looking at, it can be a detriment on that end where you’re just paying some extra taxes. 

Now, it changes each year because it’s always just looking at two years prior, but those are the types of things that are not very intuitive and can be confusing if you’re researching it or trying to do your own math and analysis on it. So, we look at all of that too. 

Jessica Hinks: 

I would say one of the most common reasons I hear clients wanting to delay Social Security is to make more room in low tax brackets for things like Roth conversions, without getting those IRMAA surcharges and getting to the higher tax brackets. And the IRMAA is the- 

Austin Wilson: 

I was hoping you were going to say IRMAA, because here I was, the whole time I’m thinking IRMAA. 

Jessica Hinks: 

Say the last version again. 

Jordan Shaw: 

Income Related Medicare Adjustment Amount. 

Jessica Hinks: 

I will never call it that. 

Austin Wilson: 

IRMAA. 

Jessica Hinks: 

It’s too many words. 

Austin Wilson: 

Also known as Max and Irma’s. 

Jordan Shaw: 

Right, that’s it. 

Jessica Hinks: 

Yeah. And if there’s one thing retirees hate paying, it is health insurance premiums, let me tell you. 

Austin Wilson: 

Yeah. So it’s one of those things where if you have that two year window and you’re planning ahead for it, you can start socking away some cash the couple years in advance. 

Jessica Hinks: 

Sure can. 

Austin Wilson: 

That way you’re a lot less income driven the next couple. I love it. 

Jordan Shaw: 

Yep, and there’s different income levels with that, those IRMAA surcharges. It’s not the same as the tax brackets when you’re looking at the income amounts that different levels are triggered at for higher premiums. And it’s graded up pretty well. So it can be as much as six, seven, eight times the standard premium amount, depending on how much income you’re realizing, so. 

Austin Wilson: 

You definitely don’t want to cross that threshold. 

Jordan Shaw: 

You really don’t want to cross – 

Austin Wilson: 

And it’s a hard threshold, not a progressive threshold like your tax brackets like you’re talking about. 

Jessica Hinks: 

It’s mostly hard, yeah. There it staggers, but we’ll call it a hard threshold. 

Austin Wilson: 

Awesome. So, you guys work with a lot of clients. Social Security is a huge topic you guys deal with all the time. What are some common questions that you guys have or things that our listeners need to know about when to claim? Just things that you talk about regularly that we didn’t address with these specific situations. 

Jessica Hinks: 

Well, one more that wasn’t in here, people always ask, “Well, should I claim from Social Security now that I’m 62 just so I’m sure I’ll get something? Because I don’t think Social Security is going to be there.” There are certainly a lot of issues with the Social Security system. A lot of it’s fixable, some of it isn’t. One thing I always say is, “You’re 62, Social Security is going to be there for you.” There are going to be some adjustments to it in the future. I don’t say that to someone my age across the table from me, but people who are in that claim age though, it’s not going anywhere. 

Austin Wilson: 

Right. Jordan, anything? 

Jordan Shaw: 

Absolutely. Yeah, and I would say another type of person too, that should potentially delay is if you are not thinking that you’ll regret it. And how I mean that is, there are some people who may claim early and if they can say to themself, “30 years from now, if I realize that I missed out on a bunch of money because I claimed five years early, I don’t care. At least I did what I wanted to at the time.” If you can honestly put yourself in that position, which is hard to do, but if you can forecast that thought a little bit and you say, “You know what? I don’t care,” then great, claim early. 

But if you think you would get there and regret claiming early to take advantage of that, that’s another reason to delay. But there is absolutely no way to know if you 100% made the right decision, because you’ll never have all of the facts available. So it’s just as much planning and as much understanding as you can get around the topic and talking with your advisor about things like this, you can at least get on the best foot forward. 

Austin Wilson: 

It’s kind of like paying off your mortgage early. 

Jordan Shaw: 

It’s exactly like that. 

Austin Wilson: 

Right? 

Jordan Shaw: 

Yeah, yep. 

Jessica Hinks: 

It’s a little more straightforward, in my opinion, but that’s for another podcast. You probably already talked about that, so. 

Austin Wilson: 

Absolutely. All right. Well, thank you guys for joining me and talking about Social Security, claiming it early, all these things around that. If you found value in our conversation, maybe you had someone asking about, “When I should start claiming Social Security or if I should wait,” share this episode with them, we’d love it if you did. Hit that share button on your podcast player. You can always visit us at thewealthmindsetshow.com for more resources, show notes, or if you’re interested in knowing more about what we do, including a lot of Social Security planning at Hixon Zuercher Capital Management. Visit hzcapital.com and check us out there. Otherwise, stay in touch on via social media and we’ll be here next episode. Have a good one. Bye. 

Thank you for joining us at The Wealth Mindset Show, where we tackle the complexities of finance and life planning to help you align your wealth with your values. We hope today’s conversation provided value and clarity as you navigate your financial journey. 

Your hosts work for Hixon Zuercher Capital Management, and all opinions expressed by them or any podcast guest are solely their own and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment, and any investor attempting to mimic index performance would incur fees and expenses that could reduce returns. Securities investing involves risks, including the potential loss of principle, and there is no assurance that any investment plan or strategy will be successful.