Key takeaways:
- Financial advisors often use breakeven analyses to determine when clients should start claiming Social Security benefits.
- While these calculations are useful, a new study indicates that different initial wealth values and personal preferences play a key role in determining the optimal claiming age.
- As with so many aspects of financial planning, the research highlights the importance of incorporating investor psychology when advising clients on when to claim benefits.
One of the most important retirement decisions individuals face is when to claim Social Security benefits. While retirees may opt to start as early as age 62, their benefits will be permanently reduced for life as a result of claiming early. Conversely, those who wait until age 70 to claim may maximize the benefits they receive.
To help clients understand this tradeoff, practitioners will often prepare a breakeven analysis using online software, a spreadsheet, or simple rules of thumb. The question is, assuming a starting age of 70, how long must an individual live to collect enough larger benefits to offset not receiving any benefits sooner?
Without applying a discount rate, the answer is about age 80 when compared to starting at age 67 (full retirement age for individuals born in 1960 or after) and age 82 when compared to starting at age 62. Life expectancy data suggests that, on average, today’s 70-year-olds can expect to live to age 85 (men) and age 87 (women). These averages are even older for high-income households with access to quality healthcare. As a result, wealthy individuals in good or better health are frequently advised to claim at age 70.
Individual preferences are a key part of the equation
While these calculations make a compelling case, they don’t necessarily tell the whole story. In newly published research, Dr. Derek Tharp, associate professor at the University of Southern Maine, argues that while a breakeven analysis is a helpful tool, it does not consider individual preferences that may influence the optimal claiming age.1
To account for these shortcomings, Dr. Tharp constructed an Epstein-Zin recursive utility model which, in layman’s terms, calculates the claiming age that maximizes individual satisfaction levels for different initial wealth values and preferences. The key finding: The optimal claiming age may be less than age 70, even for individuals with $1,000,000 or more in wealth.
What are the preferences that may lead wealthy individuals to consider claiming before age 70? First, individuals may wish to “front-load” their retirement spending. Spending in retirement is not always linear; rather, it often follows the “go-go,” “slow-go,” and “no-go” phases. Collecting benefits early allows newly retired individuals to spend their financial resources during their most vibrant years.
Second, while money is fungible, some individuals derive increased levels of satisfaction from spending income rather than principal. Tapping Social Security early avoids the need, and disutility, of spending down investment accounts.
Lastly, some individuals prefer to link their actual retirement age with their Social Security claiming age. Perhaps these individuals do not want to exert the cognitive effort needed to manage a bridge period or wish to avoid self-identifying as a Social Security recipient. Whatever the reason, a strong preference may be associated with this choice.
Factoring client preferences into the benefits claiming decision
The key point for advisors is to facilitate a discussion that incorporates not only the easily quantifiable factors but also the qualitative factors, such as preferences.
Incorporating the three preferences discussed above with a breakeven analysis is a great starting point. Consider asking clients how they feel about the following scenarios:
Spending preference: Ask clients whether they expect to spend more earlier in retirement when they are younger and presumably in better health.
Income preference: Try to gauge clients’ comfort level with spending income versus principal and explain that claiming early could allow them to delay spending down investment accounts.
Retirement age preference: Determine if clients may be reluctant to start claiming benefits before they’ve actually reached retirement.
I’ve written previously about the importance of the psychological aspects of financial planning. Social Security benefits claiming is one area where advisors may lean heavily on numbers when advising clients. But as this new research highlights – and as with so many aspects of financial planning – it’s important to factor in investor psychology and personal preferences to help ensure clients are comfortable and confident in their decisions
IMPORTANT INFORMATION
The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a financial professional. Federal and state laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information.
1 Tharp, D. “Revisiting the Social Security Claiming Puzzle: Behavioral Preferences as Rational Explanations for Early Claiming.” December 18, 2025.