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For most retirees, the advice sounds simple. Wait until 70 to claim Social Security, let those delayed retirement credits do their work, and lock in the biggest possible check. 

And the math behind that advice is real. Wait from 62 to 70, and your monthly benefit increases by roughly 77%.

So why would anyone walk away from a number that big?

The short answer is that the standard break-even analysis only measures one variable. And for retirees with significant pre-tax savings, there are other factors at play that can meaningfully change which claiming age actually produces the best outcome. When those factors are part of the conversation, the “wait until 70” answer doesn’t always hold up.

Last week, I was joined by Josh Rendler — a partner at our firm who spends his days deep inside our clients’ retirement plans — and he shared some of his unique thoughts on Social Security timing. After that episode aired, I received a number of great questions and comments from listeners on the topic. So today on the show, I’m sharing Josh’s full episode he recently published, which expands on what he covered last week.

He walks through the story of a 62-year-old woman named Carol, who has a $1.5 million IRA and is wrestling with the same “should I wait until 70” question most retirees are asking themselves. And the way Josh worked through her case study offers a useful framework for anyone weighing the same decision.

There’s more in his episode worth your time — including how to factor the source of your retirement income into the decision. And if you find yourself wanting to see the visuals he walks through, I’ll provide a link to the video version in today’s show notes which you can find by going to youstaywealthy.com/282.

With that, I’ll let Josh take it from here.

Welcome to another episode of the Stay Wealthy Retirement Show. I’m your host, Taylor Schulte, and every week I cover the most important financial topics to help you “stay wealthy” in retirement. Ok, onto today’s episode.

Why Waiting Until 70 for Social Security Can Backfire (And the Question to Ask Instead)

Carol is 62. She has $1.5 million saved for retirement, with almost all of it sitting in a traditional IRA. And the question running through her head is: Should I just wait until 70 and get the biggest Social Security check possible? Here’s the problem with that question. It’s looking at just one number. And in Carol’s situation, the number it’s not looking at is quietly making her retirement more expensive. What changed her mind might change yours, too. Whenever I sit down with someone in Carol’s situation, the answer almost always surprises them.

Let’s start with why everyone says wait, because the math is compelling. Carol is 62. So, if she claims Social Security right now, she’d get around $22,000 a year, or about $1,800 a month. If she waits until 70, that same benefit climbs to roughly $39,000 a year, which is about $3,250 a month. So, why the difference? It’s something called delayed retirement credits. For every year you hold off past your full retirement age, which is 67 for anyone born in 1960 or later, Social Security grows by about 8%. Wait from 62 all the way to 70, and Carol’s monthly benefit is 77% higher. That’s a real difference.

So, when most people look at this, they see one question: Which claiming age gives me the biggest monthly check? And the math there says wait. But here’s the problem with that question. It’s only measuring one number. And for Carol, the number it’s not measuring, well, again, it’s quietly creating a problem on the side. Because here’s what Carol’s retirement actually looks like right now.

She’s a few months in, and every month she watches somewhere between six and seven thousand dollars leave her IRA. That’s about $80,000 a year coming out to fund her life. Her Social Security is sitting there untouched, and that has started to keep her up at night. Not because the plan is wrong, but because no one has ever actually run the numbers for her specific situation.

So, here’s the question Carol should actually be asking. Not: Which age gives me the biggest check? But: Which claiming age gives me the best after-tax outcome for the entire retirement plan? Those are not the same question, and they often don’t have the same answer. Now, here’s why that matters for Carol right now. She needs $80,000 a year to fund her retirement. Every dollar coming out of her IRA, well, it’s taxed as ordinary income. If she waits all the way to 70 for Social Security, that’s $640,000 in IRA draws over eight years. Every dollar taxed at ordinary income rates.

If she’d taken Social Security at 62, she would have needed $22,000 less from her IRA each year. Over eight years, that’s $176,000 in IRA draws that didn’t need to come out. Keep that number in mind. We’re going to come back to it before the end of this video.

Now, let me show you why the source of that income matters as much as the amount. I might know what you’re thinking. If Carol takes Social Security at 62, she’s locking in a smaller check forever. That’s giving up money, right? But here’s what changes when you look at the whole picture. Social Security is not taxed the same way your IRA is. When Carol pulls from her IRA, every dollar is subject to ordinary income tax — federal income tax, and in most states, state income tax on top of that. Basically, 100 cents on the dollar.

Social Security works differently. Up to 85% of your benefit can be subject to federal income tax, and that percentage is determined by your total income from all sources. But here’s the part most people never hear: A minimum of 15% of your Social Security benefit is always federally tax-free. Always. No matter what your income is.

So, think of it like two checkout lanes for the same cart of groceries. The total is the same, but one lane has a coupon applied. IRA dollars and Social Security dollars both can pay Carol’s bills, but Social Security comes with a built-in federal tax discount. And in most states, it arrives completely free of state income tax. 42 states plus Washington, D.C., do not tax Social Security income. Zero. So, Florida, Texas, Washington, Nevada, Pennsylvania — your Social Security dollars get there without a state tax bill attached. Now, your IRA dollars, states like California and Oregon are still taxing that at your full state income tax rate.

So, let’s go back to Carol. She lives in California, where every dollar she pulls from her IRA is fully taxed federally and at the state level. But the $22,000 a year she’d get from Social Security at 62, well, 15% of that is tax-free at the federal level. And in her state, none of it is taxed. Let’s go back to that $176,000 figure from earlier. $176,000 less would have needed to come from her IRA over eight years. Income that would have arrived at a lower federal tax cost — 15% federally exempt, zero state tax. Taking a smaller Social Security check, it’s not always giving up money. For someone in Carol’s situation, she might even be keeping more of it. But there’s no need to memorize these numbers. I put together a free guide with all of them in one place, and it’s linked in the description below.

Now, when you factor in what Carol’s been trying to do with her Roth conversions, this goes even further. Here’s where this gets counterintuitive, and it’s probably the thing about Social Security timing that changes the picture most for a retiree like Carol. Carol has a goal. She wants to convert as much of her IRA to Roth as possible before age 75. That’s when required minimum distributions will start forcing money out whether she wants it or not. She’s done the reading. She knows what a $1.5 million pre-tax IRA eventually does to a tax bill, and she wants to get in front of it.

Most people, they’ll treat Social Security timing and Roth conversions as two completely separate decisions. But they’re not. And this is exactly where the “just wait until 70” starts to fall apart for someone in Carol’s situation. Here’s why.

Carol has a limited amount of tax bracket space each year. Right now, every dollar she pulls from her IRA for living expenses is 100% federally taxable, and it’s eating into the same bracket she needs for Roth conversions. IRA draws for living. Roth conversions for the future. They’re competing for the same space. Now, watch what happens when Social Security enters the picture. Carol takes $22,000 a year from Social Security. She draws $22,000 less from her IRA.

Now, only 85% of that Social Security counts at the federal level. That’s about $19,000 in federal taxable income instead of the full $22,000. The difference of about $3,000 is federally tax-free by law. And in a state that doesn’t tax Social Security, the same $22,000 arrives without a dollar in state income tax. The same $22,000 from her IRA, well, it would have been taxed at her full state rate.

So, what does all this mean for Carol’s Roth plan? Her taxable income from living expenses, it’s lower — $3,300 lower per year at the federal level. And that’s $3,300 more that she can now put toward Roth conversions every year without bumping into a higher bracket. And in states that don’t tax Social Security, the savings stack on top of that. Social Security doesn’t compete with Carol’s Roth conversion plan. When structured correctly, it actually makes room for it.

Now, one thing worth tracking as you build this out: as Roth conversion amounts increase, your total income goes up. And combined with Social Security, this can push you past Medicare’s IRMAA threshold, which for married couples filing jointly starts at $218,000. It’s not a reason to stop, just a number to build around as you plan. And there’s a specific window to set all of this up that most people miss entirely.

I’ll show you that before we’re done, because it’s earlier than almost everyone thinks. Now, let’s be honest about something. The break-even argument for waiting is real. To fully recoup the benefits Carol missed by waiting from 62 to 70, well, she needs to live to roughly age 80. And if she lives to 85 or to 90, the larger check starts to really pull ahead mathematically. And the math is legitimate.

But here’s what those calculations assume: Eight static years. No taxes factored in. No cash flow pressure. No effect on the rest of the plan. And they leave out something that doesn’t fit in a table. Carol’s worked for 35 years. She paid into this system the entire time. She wants to see that money start working for her. The idea of waiting another eight years to collect a single dollar from Social Security while her IRA drops every quarter, it doesn’t feel like optimization. It feels like being penalized for saving. And I want to be clear: that feeling is common.

There are absolutely scenarios where waiting does win, like health history, life expectancy, and survivor benefit planning for a surviving spouse. This isn’t always take it early. This is run the real projections. Try not to default to an answer because a financial website said it was the smart move. As long as Carol’s plan can support it, the way she wants to structure her retirement income has to be a part of this decision. A well-built plan doesn’t make you choose between doing the math right and actually enjoying the retirement you built. Now, if you want to see how we build a system around your retirement so decisions like this are already handled, there’s a link in the description below.

So, let’s go back to the question Carol walked in with. Should we wait until 70 for Social Security? The answer isn’t yes or no. It’s: It depends. And here’s what it depends on: Her IRA balance. Her tax picture. Her Roth conversion window. And whether receiving that income now changes how she actually lives the retirement she built. Carol stopped waiting. She turned on Social Security, and the plan we built around that decision coordinates her Roth conversions, keeps her out of brackets she didn’t need to be in, and gives her the income stream she spent 35 years earning.

Final Thoughts

I hope you enjoyed Josh’s thoughts and framework for thinking through the Social Security timing decision. 

One thing I’d add to Josh’s framework — something I’ve noticed throughout my career — is that retirees working through this exact decision tend to fall into one of two camps. The first is so anxious to “get their money” that they claim at 62 without going through any sort of planning process or running any numbers. The second is so committed to optimizing the math and maximizing their benefit that they wait until 70 without considering the trade-offs Josh just walked through — the IRA draws happening in the background, the Roth conversion window closing, the cash flow pressure building up.

Both camps are making the same mistake. They’re letting one variable drive a multi-variable decision.

The retirees who land in the best spot treat Social Security timing like every other piece of their plan — as something that needs to be coordinated, not isolated. Your claiming age affects your tax brackets. Your tax brackets affect your Roth conversion capacity. Your Roth conversion capacity affects your future RMDs. Your future RMDs affect your Medicare premiums. It’s all connected.

If you’re in your 50s or early 60s right now and beginning to think through this question or even work toward a decision, my suggestion would be to resist the urge to default to whatever the conventional wisdom says. Run the actual projections for your specific situation, and then make the decision that fits your plan — not someone else’s.

This is exactly the kind of work that Josh, myself, and the rest of our team do every day for the families we serve. If you’d like to learn more about our process and see if we might be a good fit to help you with your retirement, you can book a complimentary 45-min meeting by following the link in the episode description right there in your podcast app or by visiting youstaywealthy.com and clicking the work with me button. 

Thank you, as always, for listening, and once again, to view the resources and links referenced in today’s episode — including the video version of Josh’s full breakdown — just head over to youstaywealthy.com/282.

Disclaimer

This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.