Deciding when to start claiming Social Security is a question Ben Ruttenberg and Tyler Houston hear often from high net worth clients, and in this episode of EWA’s FIN-LYT Podcast, they break down how to actually think it through.
Ben and Tyler walk through how Social Security works, from the full retirement age of 67 to the tradeoffs between claiming as early as 62 or waiting all the way until 70. They dig into the numbers behind that decision, including what the maximum monthly benefit can look like at each claiming age, and share the break-even math they’ve run for clients to show when a spouse who claims early and reinvests those proceeds might come out ahead of a spouse who waits for the larger check.
The conversation also covers the tax side of Social Security that can get overlooked, like how up to 85% of your benefit can be taxable, how that income can affect Medicare Part B and D premiums two years down the road, and why the timing of a Roth conversion or other taxable event might factor into when you claim. Ben and Tyler also touch on spousal claiming strategies, the earnings limit for those still working before full retirement age, and why for many high net worth households, this decision can matter more for peace of mind than for the bottom line.
If you’re weighing when to start your own Social Security benefit, or coordinating that decision with a spouse, this episode gives you a framework to think it through. Like and subscribe for more conversations like this one.
Speaker 1 – 00:00
What is Social Security? How does it work? How is it funded? Let’s say you’re a married couple. Should one spouse
take it early? Should one spouse, wait, what if I.
Speaker 2 – 00:09
Took my Social Security at 62 and I started to reinvest some of the proceeds that I wasn’t spending? There’s been
a lot of studies on this. We’ve done a lot of research on it. If you’re an ultra high net worth individual, we don’t want
to let the idea of Medicare being a little more expensive too. There’s other like tax efficient ways to think about too.
Speaker 1 – 00:22
If you have pension or pre tax IRA distributions, those generally will qualify as income the year you take them. And
then 85% of your Social Security benefit is also considered taxable. And so why does this matter? This is really for
making sure that we’re making the right financial decision, but also peace of mind decision that has to deal with
the other factors in your financial plan. So, Tyler, Social Security is something that every retired couple, retired
person is going to have to deal with eventually. And there’s a lot of factors that go into how the Social Security
system is funded. When should you start claiming your benefits? Should you coordinate your benefits with your
spouse if you’re married?
Speaker 1 – 01:04
How it all works, we’re going to break it down and specifically for this episode, we’re going to talk through Social
Security planning for the high net worth, where the actual dollars and cents of your monthly Social Security check
is not going to, for the most part, make or break your financial plan. There just are some factors to be aware of that
we are going to run through. So, Tyler, why don’t you just walk us through just a brief explanation before we get into
the specifics. What is Social Security? How does it work? How is it funded?
Speaker 2 – 01:33
Yeah, thanks, Ben. Social Security in its purest definition, it’s essentially a public benefit that we’ve all heard about.
The government, you pay into it throughout your working life, government pays you back whenever you retire as
like a public benefit. Most people know Anyone born after 1960, full retirement age now is 67. So what does that
mean? You’re eligible at age 67 for your full Social Security benefit. So whatever you’ve paid in, the government has
a calculation that pays you out based on what you earned up to a certain amount. So you can’t make 10 million a
year. You’re not going to get an unlimited Social Security benefit. It obviously has a cap, but there’s a couple
different ways you can claim your Social Security. One is you can claim it at 62. It’s roughly 70% of your benefit.
And it’s also a permanent reduction.
So if you take it before full retirement age, you get a permanent reduction. That’s I think it’s like 5/9th of a percent
per month. There’s some math behind it for the first 36 months that you’re early, and then it becomes a smaller
percentage if you’re taking it a little sooner to full retirement age.
Speaker 1 – 02:37
Perfect. So the earliest you can take it is 62. The latest you can take it is 70. Every year you wait, there’s about an
8% return on that Social Security benefit. So the question becomes, you know, when do I start taking this benefit?
Do I take it at 62? Do I wait until my full retirement age at 67, or do I wait all the way until 70? There’s no real reason
why you should wait past 70, because once you hit 70, that benefit is locked. It doesn’t get any bigger after that. So
assuming you earn, for everyone listening to this, if you’re in that high net worth space, the max benefit at your full
retirement age is going to be around 4,000amonth. And if you wait until 70, it’s going to be closer to 5,000 to
5,200amonth.
Speaker 1 – 03:21
And so these figures, again, assuming you hit that taxable maximum every year since age 22, most people
listening to this will be in that space. So the question becomes, what do I do? And there’s really kind of a financial
answer. There’s a peace of mind answer, and then there’s answer that deals with all of the other factors that go
into your financial plan. Your longevity, your tax situation, any other kind of events that might be happening in your
financial plan. So let’s just start with the peace of mind answer and the way that we work with retired clients all the
time. And it’s very easy for them to spend their Social Security check. It’s a lot harder for them to spend assets
from their IRA or their investment account that they’ve worked so hard to accumulate.
Speaker 1 – 04:10
There’s a psychological aspect that, hey, I’ve paid into this system for 40 years and it’s, you know, this is kind of the
first lever that I’m going to pull to start spending. So from a peace of mind standpoint, it’s very easy for retirees to
spend that Social Security check. So the earlier we take it, the quicker we get that benefit and the less we need to
take out of our portfolio to supplement our retirement lifestyle, the later we Wait, obviously, the bigger the payment,
but that means that you might be digging into your retirement nest egg early. And you know, Tyler, that might not
be something that people want to do, right?
Speaker 2 – 04:45
Yeah, Benny, that’s a great point. I think it’s also kind of like, I don’t, people think like, I don’t know if Social Security
is going to be around forever, so I might as well use it while it’s available. It’s another, is another portion.
We always hear, yeah, the Social Security trust fund. There’s been reports that by 2035 that fund won’t exist
anymore. But 75% of that Social Security fund around that is funded by payroll tax. And so if you’re listening to this,
if you’re in retirement or close to retirement, Social Security is pretty safe. There may be some additional reforms
that happen, whether that’s, you know, lengthening the full retirement age, increasing that Social Security wage
limit to make maybe slightly more of it taxable. But if you’re listening to this, your benefits more than likely still
good. There might just be some additional reforms that might be coming down the road. But from a financial
standpoint, we’ve talked about waiting until 70 to get that higher return. The question becomes, you know, let’s say
you’re a married couple. You know, should one spouse take it early?
Speaker 1 – 05:54
Should one spouse wait? Let’s assume that there’s a healthy couple, they’re expected to live well into their 90s. The
question becomes maybe one spouse has higher earnings than the other spouse. Social Security is really kind of
an average of your highest 35 years of earnings. They plug that in and then they spit out the monthly benefit that
you received. So the question becomes, should one spouse take it early? Should one spouse wait? There’s
generally a break even point, Tyler, to when that math would make sense. Meaning when would the spouse that
takes it early catch up to the spouse that takes it later? So, Tyler, do you want to walk us through initially how that
math would work? And then we ran some analysis to show if they reinvest some of those proceeds, what that
looks like.
Speaker 2 – 06:42
Yeah, let’s start where, what if we just. One spouse takes it 62, the other spouse takes it at 70. Been. There’s been a
lot of studies on this. We’ve done a lot of research on it. It’s like age 80 to 83, obviously, depends how much you
make. But if we assume that you’re, you’ve earned the most that you can and maxed out your Social Security, it’s
like 83. You know, life expectancy in the United States is, I don’t know, is it 78 now? So like, is it worth waiting?
Technically, But I guess it depends. Longevity, health, those are all things you’ll want to take into consideration.
However, the second way I would think about this is like, what if I took my Social Security at 62 and I started to
reinvest some of the proceeds that I wasn’t spending.
Speaker 2 – 07:26
So if we model this out, person A takes Social Security at 62, they start claiming it, and person B claims it at 70 and
invested every check starting at 70 with the larger monthly amount versus 62 where they invested it at the lower
amount. And then you solve for age, where B’s invested balance finally crosses A’s. So the person that took it first
results. If you assume a 0% rate of return, the break even is age 81, like we mentioned earlier.
Speaker 1 – 07:54
So that’s assuming the first spouse takes their Social Security check and just puts it in the bank and they don’t
reinvest it.
Yep. And then same like same form of the second spouse put in the bank, don’t invest it and it eventually gets.
Speaker 1 – 08:07
Caught up at 81. So they this the. Yeah, gotcha.
Speaker 2 – 08:11
Okay. Yeah, at 81. Yep. At a 3% real rate of return. And real rate of return is just stripping out inflation. So that’s like
what you’re actually earning above and beyond inflation. It’s about age 85. At 5% of a real rate of return it’s 90. And
at 7% of return B probably never catches up within a normal lifespan. So if you go into your hundreds, you still
might not catch up to the person that was taking it first.
Speaker 1 – 08:36
Gotcha. So the spouse that’s claimed it early and reinvested it because they had that eight year Runway of the
compounding interest, the compounding returns, they were more than likely ahead, depending on what the actual
returns were than spouse B or at least made it all the way out into their 90s. So, and this is, and this conversation
is really framed for people that don’t necessarily aren’t relying on this check to pay their bills and sustain their
lifestyle. It is really for just giving you that kind of education on the finances behind should one take it, should one
not.
Speaker 1 – 09:14
We like the idea of maybe, you know, if you have two spouses and this is kind of in your situation, taking one early
and if you don’t need it, reinvesting those proceeds while letting maybe the spouse that has the higher benefit wait
all the way out until 70 so that they can accumulate that higher benefit. So again, this is all case by case, but that is
the break even math where the spouses would technically catch up to each other in terms of dollar amount. So
again, it’s hard to mess this up when you’re dealing with the ultra high net worth and the high net worth.
Speaker 1 – 09:50
If you have a, you know, a two physician household that has, you know, 5 million in their portfolio, if they claim it at
60 versus they claim it at 70, the lifetime difference is a really a rounding error. It’s not going to impact their net
worth. One of the key components of your retired cash flow is just trying to manage your taxable income. When
you’re in your 60s, 70s and 80s, you’re no longer earning a paycheck anymore if you’re retired, but a lot of your
income is still taxable. So if you have pension or pre tax IRA distributions, those generally will qualify as income
the year you take them. And then 85% of your Social Security benefit is also considered taxable. And so why does
this matter?
Speaker 1 – 10:36
Well, your Medicare Part B and D premiums, your Medicare Part B premiums, excuse me, and your part D
surcharges are based on your income from two years prior. So if you’re thinking, if we’re listening to this in 2026,
your 2024 income is going to dictate what you pay in Medicare premiums when you’re in retirement. And so
knowing that 85% of your Social Security income is going to be considered taxable, if you are in your early to
mid-60s and you’re debating to start taking Social Security or not, let’s say you have in mind a, processing a Roth
conversion that year or if you’re thinking about, you know, receiving a capital gain from a business sale or selling
real estate or something like that, maybe one spouse is older and they’re subject to an rmd.
Speaker 1 – 11:26
We want to make sure that you’re aware of what your income is that year and if it makes sense to delay Social
Security to not have that included income to help make sure that you’re ultimately your income is below certain
thresholds. That’s something to, that’s something to consider.
Speaker 2 – 11:43
Yeah, yeah, but that’s a good point. I’d also add too, it’s all really important to consider, but at the end of the day, if
you’re an ultra high net worth individual, like a couple extra, we don’t want to let the idea of Medicare being a little
more expensive too, like control our decisions. There’s other like tax efficient ways to think about too. So that’s just
something I would keep in mind is it’s not the end all, be all for Medicare decision, Social Security, stuff like that.
Speaker 1 – 12:08
That’s right. And I know we mentioned the full retirement age earlier at 67. One thing to consider because we have
a lot of clients that are still working through their 60s, even into their 70s, working because they want to, not
because they feel like they have to. Right now there is an earnings limit. If you claim Social Security before your full
retirement age. Right now, that’s $1 withheld per $2 earned. Above that earnings limit, it’s around 25,000 of
income. And so in the calendar year that you reach your full retirement age at 67, that limit jumps up to 65,000 and
then eventually no limit at all once you reach that fra. And so if you claim Social Security before that full retirement
age, you’re not losing any money, you’re just repaid via a higher monthly benefit.
Speaker 1 – 12:56
Once you start at full retirement age, there’s a bit of a misconduct that sometimes can be misconstrued that you
think, oh, I’m wasting money, I’m losing money. By claiming Social Security, you’re just getting less of a benefit
when you do. And then ultimately you kind of make it up when you get to full retirement age. So something to
consider if you are in that high net worth space, like to work, enjoying the work that you’re doing, you know, don’t let
that factor into the decision, but don’t feel like you are, you’re, you’re losing any withheld amounts. So Tyler, what
else? So we talked through kind of the financial aspects, talk through the peace of mind aspects and then we talk
through understanding your tax situation. What else, what else is relevant for high net worth physicians and family
members in the Social Security space?
Speaker 2 – 13:44
Yeah, I mean, it’s a great question. I think it might be valuable to spend time on this. It might apply to you, it might
not if you’re a one income household. As a physician, something you’ll want to keep in mind is, Ben, you touched
on it earlier. The, the longer you delay that Social Security benefit, obviously you’ll get a larger benefit when you get
to age 70.
Speaker 1 – 14:04
Yeah.
Speaker 2 – 14:05
So Ben, I think we covered pretty much everything we wanted to talk about, but I think at the end of the day, like
Social Security feels like a big decision, but if you’re in the ultra high net worth space, you’ve made a lot of money
and grown a lot of assets over your lifetime. I, I would not let this like give you decision fatigue. It’s genuinely pretty
low stakes, right? This isn’t going to break the bank or ruin your retirement. For the, for most people, like for most
people that are in this asset range, I would, if it were me and I was in your guys shoes I would just pick something,
do some math, pick something reasonable and move on.
Speaker 2 – 14:37
But I don’t know if you think of anything different but I wouldn’t let this like stress you out beyond a couple extra
thoughts.
Speaker 1 – 14:43
Yeah, we would. So in this situation we would run the analysis for you and give you that break even point because
we want to make sure that you’re making a financial plan is if you know if there’s a health event, if life expectancy
isn’t right, we want to make sure that is factored in. If there’s a big taxable event in the next couple years, we want
to make sure that’s factored in. So we would run the analysis for you. But ultimately your overall net worth is not
going to be impacted. If you’re listening to this for the most part, if you are claiming at 62 versus 67 verse 70,
there’s just a few factors that we ran through today that we want to make sure that we’re aware of before we make
any Social Security claiming.
Speaker 1 – 15:26
So if you are in this space and you have questions about how your Social Security is structured, if you wanted us to
run analysis for you to show what that break even point would look like between you and your spouse, feel free to
reach out to us. We’re happy to run that analysis for you and give you a constipation. It.
