Well-informed, soon-to-be-retired folks generally know there’s a sweet spot between age 62 and age 70 where Social Security should be claimed to get the greatest benefit. But it varies person to person based on their situation. And deciding is often a best guess.
New tariff-related market volatility may be amping up anxiety for anyone who needs to decide soon.
Those ages — 62 and 70 — are the minimum age at which you can claim Social Security and the age at which the amount stops growing if you put off claiming to get the biggest monthly amount. You can wait longer, but there’s no financial advantage in terms of how much a monthly benefit would be.
Year to year, there’s an 8% difference in the amount you get, with the amount at full retirement age as the basis. Say your full retirement is age 67, which is the case for anyone born in 1960 or later. For each year before that where one claims Social Security, there’s an 8% decrease from that full retirement amount. If you wait, it goes up from that amount by 8% until it tops out at age 70.
The Social Security Administration explains it with a hypothetical $2,000 full retirement monthly benefit. Take it at age 62 and it’s around $1,400. Wait until you’re 70 and it’s a monthly payment of about $2,480. That’s a big difference, though other factors matter, too, like your age and expected lifespan and whether you have a spouse and … well, lots of things, said Stephen Johnson, fiduciary investment adviser and a branch manager in Draper, Utah, at Raymond James Financial.
Johnson said “the issue right now is scaring the heck out of everybody, the tariff situation and the markets dropping 5% a day.” He tells clients not to make retirement decisions based on short-term market moves.
What happens, though, if you want or need to retire and have to claim at least some of your 401(k) or take Social Security right away to afford your life?
Bridge over troubled water
Lots of folks choose what Gal Wettstein, associate director of health and insurance at Boston College’s Center for Retirement Research, calls a “Social Security bridge.”
With the bridge, you take money from your 401(k) so that you can afford to wait until age 70 to get your Social Security, letting that monthly benefit balloon 8% a year. Besides that, Social Security is indexed to inflation, so it has a bit of growth built in for rough inflation years, though the increase lags about a year.
But what might seem like a sound idea in different times may not be so smart when the stock market’s volatile, as it is right now due to President Donald Trump’s tariffs.
The secret to success in the stock market is to buy low and sell high. Start taking money from your 401(k) now and you’d be doing the opposite, unless you’re well diversified with plenty of bonds, which are up right now and can bolster an otherwise sagging 401(k).
The “what to do depends,” Wettstein told Deseret News. “I would like to think of it as two separate questions, one for people who are already receiving their Social Security benefits and one for those who aren’t.”
Different paths
For those who have already locked in their Social Security, he said, “belt-tightening” is the answer. “What you don’t want to do is sell your assets right when their price has crashed. We don’t know what prices are going to do in the future, but if you think that prices will recover in the nearish future, then you might want to postpone big expenses or things like that where you would have to liquidate assets at a bad price.
“You might rely on Social Security in the meanwhile and put off fixing the roof” or tackling other big expenses, Wettstein said.
For those who haven’t started claiming Social Security, the answer’s a bit different. Those who are still working should probably just keep doing that and avoid liquidating assets, he said.
But the folks who aren’t working and haven’t claimed Social Security, he said, “have a dilemma.”
If they claim Social Security now they might, depending on their age, lose that future 8% for each year shy of 70 they’d hoped to reach, Wettstein said. But they have to “trade that off against the option of losing money right now by selling their 401(k) assets at a bad price.”
For that, he said, there’s no blanket answer. “I think I would talk to a financial advisor” who could examine one’s particular situation. “It depends how old they are, it depends how much their Social Security benefit is, it depends what kind of assets they’re in.”
Those who have bonds won’t be as hard-hit as those whose portfolio contains primarily equities right now. And even those stocks have been differently impacted, which means should they need to sell, an individual should get some expert advice on what to sell, he added.
Because the swings are so big right now, Wettstein said, “I think decisions become much more fraught. It’s important to make them carefully and on an individual level.”
The bridge to preserve a higher Social Security when claimed in the future could make a lot of sense for many people, but it’s a poor time to draw down on assets that are worth less than before.
And there’s another wild card, called the “sequence of returns risk,” Wettstein said. When you start cashing in your 401(k) assets, it matters which comes first: good returns or bad ones. If you’re not using those assets, that doesn’t matter. Once you’re withdrawing, if assets go down early, that’s worse than if they go down late, because you are selling stocks at low prices.
“It all comes back to basic principles, and that is something that has to be top of mind for people right now who are considering leaning on their 401(k),” Wettstein said.
So Wettstein circles back to tightening one’s belt. “As long as it’s only asset prices that are moving and maybe consumer prices with tariffs and things like that, then it is a question of belt tightening and which assets to sell and which not to sell.”
In the great recession around 2008, it wasn’t just a matter of asset prices. The labor market was in bad shape as the market struggled. “I expect that will be the dominant consideration if we do end up in a recession. The availability of jobs, the ability to work, will be one, if not the major consideration of when to claim,” he said. “People who can’t find jobs will have strong reason to claim even if it isn’t the financially optimal thing to do; they’ll just have no choice.”
Not the primary concern
For most people, said Johnson, whether to delay taking the 401(k) to let it recover or to delay Social Security to let it grow isn’t where decisions are being made.
There’s a mathematical answer to when to take Social Security, but it’s filled with variations and some risk. Someone who takes it at 67 but lives a long time might have been better off waiting, but there are also people who will choose to take it as soon as possible “because I have no guarantee I live to be 82.”
Sophisticated software programs can run scenarios and return a suggestion: 46% of the time you’ll outlive your funds or 95% of the time you don’t run out of money, or tons of answers in between.
“I’ve been doing this for 40 years. I’ve seen a lot of down markets in my lifetime but it always recovers,” Johnson said. “You don’t want to make a decision based on what the market’s doing for five days or 10 days.”
Look closely at your investments
Part of making good choices hinges on knowledge — as in knowing what is in your 401(k), Johnson said. “How much do you currently have in stocks, bonds and cash by category.”
The vast, vast majority of people don’t have all their money in stocks, he and Wettstein agree, particularly in a professionally managed 401(k).
Having all your eggs in the stock basket would be a terrible move for someone who is close to retirement.
Johnson suggests people have a year or two’s worth of monthly income set aside to meet needs so they can ride out whatever happens without deciding to sacrifice money that’s in a 401(k) or their Social Security. “So that we know that if the market stocks crash, you don’t have to sell anything for a year or two while it’s down, because you’ve already got it under the mattress in cash or bonds anyway.”
He also notes that retiring and dying are not the same thing. You can retire at 65 and live another 20 years if you have normal life expectancy. Those who are diversified don’t have all their money in stocks. And they can afford to take a long view of the market’s ups and downs.
“We’ve already protected your income, so to speak, by not being in stocks with some of that money and you just let stocks do their thing,” Johnson said.
And a disclaimer: Both men told Deseret News they’re talking in general terms, not offering specific financial advice in this story.
