Give Me 8 Minutes And I'll Explain Why Everyone’s Claiming Early

Today, I'll explain why more Americans

are claiming Social Security benefits

early and whether that choice is smart

or potentially costing you hundreds of

thousands of dollars. Recent reporting

from AARP shows a 16% spike in early

Social Security claims this year. And

nearly half of those who filed early or

considered it say they did so because

media headlines claim the program is

running out of money. Even higher income

individuals, those with the most

flexibility to delay, are now starting

benefits at age 62, accepting as much as

a 30% permanent reduction compared to

waiting until full retirement age. And

this shift is not just about

demographics. Researchers at the Urban

Institute say population growth alone

simply does not explain the spike. What

we're seeing instead is behavioral fear,

panic, and reacting to headlines. And

here's the key. Your claiming age is an

irrevocable selection. Once you start,

you cannot undo the benefit cut. So when

decisions are driven by panic, they

often override clear financial logic.

And that's exactly what I want to talk

about today. Is this panic justified or

is it an emotionally fueled decision

that ignores logic? Before we dive in,

this video is forformational and

educational purposes only. We are going

to walk through examples and

illustrations and they are hypothetical

and not guarantees of future results.

Okay, first here's what you should know

about the state of social security.

Social security is primarily funded

through ongoing payroll tax revenue.

True, the trust fund reserves are

projected to run short by 2035, but even

then, current models suggest benefits

could still be paid at 83% of scheduled

levels in 2035 when the trust fund is

expected to be depleted and this figure

could decline to 73% of scheduled

benefits by 2098. So, the idea that

benefits will completely vanish is

unfounded. What is real is this. Early

claiming comes with permanent cost. And

when you're reacting to fear, you often

trade certainty of income now for a much

smaller lifetime benefit later. And that

brings us to the real question. Should

you delay? And if so, what's it actually

worth? Let's talk about what leading

researcher Michael Kitis calls the real

investment return of delaying social

security. You've probably heard that

delaying past your full retirement age

gives you an 8% bump per year until age

70. That's true, but it's an

oversimplification.

What a lot of these analyses leave out

is opportunity cost. The benefits not

paid from age 72 to 70 represent a

foregone investment opportunity.

Meaning, the money could have been

invested if it wasn't needed or it could

have been consumed and thereby allowed

other assets to remain invested. It's

not just about getting more money later.

It's about making up the foregone

benefits from delaying. Imagine your

benefit at full retirement age is $3,000

a month. If you start at 62, you begin

collecting earlier but at a permanently

reduced rate. In this case, claiming at

age 62 results in a 30% reduction or

2100 a month. But if you were to delay

to full retirement age, that's age 67

for most people considering this

decision right now. That is a full 5

years from 62 to 67 of foregone

benefits. Your portfolio must cover that

gap if you delay. And that cost is often

ignored in simple calculators. Walking

through the Kitchen's article titled How

delaying Social Security can trump

long-term portfolio returns or lifetime

annuity. It's a breathy one. The first

chart he shares is on the Social

Security delay break even. And this

chart shows what happens if you delay

from age 62 to 70, assuming a 3%

inflation and 6% growth on your

portfolio and the cost of waiting for

the higher benefit. In this example, the

individual is looking at a monthly

benefit of $750 at age 62 versus a

monthly benefit of $1,320

at age 70. At first, you are underwater.

That's the income you've given up by

waiting. But look what happens around

year 22 or roughly age 84. You break

even. And after the break even point,

the line takes off sharply upward. The

longer you live, the more delaying pays

off. That's the key here. The decision

to delay grows exponentially every year

as compounding time value of money now

works in favor of the delay decision.

But yes, 22 years is a long time to

merely break even because the cost of

not receiving benefits for 8 years takes

a long time to recover from. The

decision to delay is not just about when

to begin benefits, but a choice between

taking the benefits versus spending from

the portfolio and waiting for the higher

benefit. So the decision to delay must

be discounted by opportunity costs of

not being invested in the portfolio. Now

here's the second chart. This is the

internal rate of return on that delay.

And this is another way to look at the

decision. This is the break even rate of

return that would have been necessary at

various points along the time horizon to

have achieved a comparable result. Of

course, it starts out ugly, deeply

negative, shown that the decision to

delay is risky if you pass away early.

Once benefits begin at year 8, it takes

another eight years for the excess

payments to make up for the years

benefits weren't received. At the

16-year mark, the internal rate of

return hits 0%. And then it takes

another 6 years until the internal rate

of return equals a 6% growth rate.

That's the 22-year break even point we

just saw at age 84. But just like we saw

in the last chart, beyond that point,

the internal rate of return continues to

increase. Now in this third chart, Kitis

translates the nominal internal rate of

return to the real internal rate of

return, which is the inflation adjusted

returns. Kit just points out that those

who reach age 90 have generated a 5%

real rate of return in what is

essentially a governmentbacked bond. And

these are his exact words. By contrast,

the long-term real return on equities

has been only about 7%, which represents

a 7% equity risk premium over an

alternative risk-free rate. Which means

for equities to generate a comparable

risk premium over the value of delaying

social security, equity real real

returns would need to be 8.3% after 20

years, 11% after 25 years, 12% after 30

years, and 13% after 34 years. Arguably,

these are questionable real returns to

expect in any environment and even more

questionable in the context of today's

above average valuations. So, how should

we think about social security? Not

merely as income to supplement your

savings, but potentially we can think of

it as longevity insurance, the risk that

you live a long time. For those with

sufficient savings, delaying is like

buying a higher yield inflationadjusted

annuity backed by the US government. In

other words, if your biggest worry in

retirement is living too long, delaying

benefits could be one of your best

long-term decisions. Kitas emphasizes in

this final chart that even with a trust

fund shortfall, the delay still shows

compelling returns because the benefit

stream hedges market risk and inflation.

This orange line in this chart shows the

assumption that benefits receive a 30%

haircut in the year 2034. If on the

other hand, your savings are thin, your

health is uncertain, or you just need

income now, early claiming may still

make sense, but it should be a conscious

trade-off and not a panic. In short,

headline panic about social security

doesn't justify automatic early

claiming. Claiming early may feel safe

in the moment, but in many cases, it

permanently reduces your financial

power. If you're in a position where you

can delay and your plan allows for the

temporary gap, delaying benefits can act

like highquality longevity insurance. Or

you can view it like a solid investment

with superior riskadjusted returns

compared to the alternatives if you live

a long time. If you'd like to explore

what your version of this could look

like, click the link below to schedule a

retirement readiness