Why Delaying Your Social Security Benefits Almost Always Makes Total Sense

A Response to Derek Tharp's WSJ Article Suggesting the Opposite

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Derek Tharp is an associate professor of finance at the University of Southern Maine, the founder of Conscious Capital and head of innovation at Income Lab. On October 5th, Professor Tharp published an editorial in the Wall Street Journal entitled, “Why Delaying Your Social Security Benefits May Not Make Sense.”

I’ve spent years pointing out that, for the vast majority of workers, delaying Social Security through age 70, in the case of retirement benefits, and through full retirement age for auxiliary benefits, is the optimal strategy. Hence, I feel compelled to respond to Professor Tharp, who I’ll refer to simply as Derek with no disrespect intended. (Btw, Derek, I’m happy to cordially debate this issue with you on my podcast if you’d like. Just give me a shout at kotlikoff@gmail.com.)

Below, I quote or paraphrase, without quotation marks, Derek’s column and then respond.

Derek “Economists commonly recommend that most Americans should delay claiming Social Security benefits until age 70.”

Larry I agree.

Derek The standard argument: Social Security is the only inflation-protected and guaranteed-income source available to many Americans. Hence, it makes sense to hold off on claiming benefits so you can receive the maximum amount possible. Waiting till 70 to collect your retirement benefit delivers a 76 percent higher benefit, adjusted for inflation, each month than collecting at age 62. Delaying protects against outliving your resources.

Larry With you, Derek! And, wow, 76 percent! That’s a massive increase! But you left out what for many/most households can be the real icing on the cake. If you pass away having taken your retirement benefit at 70 — at its highest possible starting value, your surviving spouse and ex-spouse(s), to whom you were married for at least a decade, will collect the larger or a) your check and b) their retirement benefit.

Derek But only 10% of workers wait that long. Are retirees making mistakes or are economists missing something?

Larry Most retirees are making major collection mistakes.

Derek “… there are questionable assumptions underlying both the analyses that generally recommend delaying claiming benefits until age 70 and the financial-planning tools Americans often rely on when evaluating claiming strategies. Many studies that advocate for delaying Social Security assume that future dollars are worth almost the same as today’s dollars. They base this on the very low returns one might get from safe, inflation-protected government bonds. But this doesn’t reflect how most retirees actually invest. Most people don’t have portfolios consisting of assets that earn just 0% to 2%. Rather, their portfolios hold a mix of stocks and bonds—which historically have earned closer to 5% above inflation. This difference isn’t a matter of trivial academic assumptions. Assuming you’ll earn about 5% rather than less than 2% on Social Security income can completely change the math; it makes delaying benefits much less attractive.”

Larry Derek, Ec 101 teaches us that we need to value an apple at the price of an apple, not an orange. Social Security benefits are inflation-indexed and, leaving aside policy changes, are as safe as Treasury Inflation Protected Securities (TIPS). Hence, the future path of Social Security benefits needs to be priced based on the prices of TIPS of different maturities — the TIPS term structure. From the beneficiary’s perspective, receiving $X in real benefits in, say, 30 years, is no different from receiving the same $X in 30 years in the form of a TIPS coupon payment.

The price of an $X TIP payment 30 years from now is just the discounted present value of the $X, where the discounting is based on the term structure of TIPS. It’s not the far higher discount rate we’d use to discount (as in make less of) the expected dividends on risky stocks. That far higher discount rate equals the return on TIPS plus a risk premium called the equity premium.

As I write, 5-year, 10-year, and 30-year TIPS are yielding 1.3% real, 1.7% real, and 2.4% real, respectively. That’s half of the 5% discount rate you advocate, Derek. The value today — the present value — of a dollar of real Social Security benefits received 30 years from now, when discounted at 5%, is 23 cents. It’s 49 cents when discounted at 2.4%. So, Derek, you’re suggesting undervaluing Social Security benefits by roughly half.

Yes, the taxation of TIPS coupons is different from that of Social Security. But, as demonstrated here using my company’s MaxiFi Planner software, waiting to collect benefits can dramatically increase the gains from Roth conversions. Of course, there will be some households for whom collecting later entails higher taxes. But I’ve never seen a case where tax savings from filing early come close to the gain in lifetime benefit increases from delaying collection.

Undervaluing Social Security is singing Wall Street’s song, to wit, Retirees should take their benefits early, invest in the market, and pocket an enormous gain. But that song, which Wall Street sings to keep more assets under management and, thereby, earn more fees, ignores risk. As you know, Derek, the stock market rises, on average, by about 7.5 % real each year, but the standard up and down of the real return — the annual standard deviation — is 13.5%. And there is no guarantee that if the market drops, say, 53 percent as it did in the Great Recession, that it will rebound or rebound quickly.

But, wait!

According to Wall Street, “The stock market has outperformed the bond market during any 30-year holding period for the past 100 years.”

Not so fast.

Our data on annual S&P returns starts in 1925. Hence, we only have three independent 30-year, cumulative-holding-period observations if we don’t, as Wall Street does, use the same annual returns more than once in our statistical analysis — a big statistic no no.

For example, the 1929-1959 30-year return and the 1930-1960 30-year return are both using annual real returns from 1930 through 1959. A fourth, particularly nasty 30-year holding period stat, which Wall Street never mentions, is the negative 55 percent real cumulative return on the Nikkei — the Japanese stock market — from 1989 through 2019.

In short, anyone who says “Stocks are safe in the long run.” is selling horse meat as filet mignon. Moreover, were stocks safe in the long run, why in the world would TIPS be yielding anything less than 7.5% real, let alone 5.1 percent points less? I.e., why would there be a major equity premium that has been the subject, for decades, of thousands of professional articles in leading journals of finance?

Derek “Dying earlier than expected could result in leaving hundreds of thousands of dollars on the table that otherwise could have been spent or given to loved ones or causes one cares about.”

Larry Derek, please read Menachem Yaari’s seminal 1965 article. It explains the economics of longevity risk. As with all other risks, risk averse households — that’s everybody but the billionaires — need to focus on worst-case scenarios. The worst-case scenarios — the catastrophic risks — are your house burns down, you total your car, you incur massive healthcare bills, and you live to 100 or whatever is your maximum age of life.

Yes, the worst case is always extremely unlikely. But the worst case is also precisely when you need money the most. No one wants to live on the street at age 100. Outliving our resources is the longevity risk’s worst case — its catastrophic outcome. Giving up lower benefits for, say, eight years to receiving 76 percent higher real benefits for the rest of your days, i.e., purchasing longevity insurance from a trusted insurance agent, namely Uncle Sam, helps avoid a longevity catastrophe

Derek, what you wrote is akin to saying, “Buying homeowners insurance and not having your house burn down will waste tens of thousands of dollars through time — “dollars that could have been spent or given to loved ones or causes one cares about.” You’re effectively counseling homeowners to forgo buying homeowners insurance because they’ll almost surely never collect on the premiums they pay. You seriously can’t be serious.

Derek Delaying benefits also exacerbates the sequence-of-returns risk. If markets tumble early in retirement, the extra withdrawals retirees might need to take from retirement accounts to delay claiming Social Security benefits can magnify losses and permanently damage a nest egg.

Larry. For starters, waiting too long to cash out your stocks may raise your lifetime taxes and limit your portfolio diversification. But households have other means to avoid stock redemptions apart from taking Social Security too early. They can keep working, borrow from their siblings, limit their spending, downsize their homes, move in with their kids, etc.

Obviously, if you are out of work and have no means of support apart from Social Security, you need to take benefits early. But sequence-of-return-risk — withdrawing funds from the stock market and, thereby, potential losing out on future growth — is primarily a “problem” of the rich, not the vast majority of households who are retiring too early and taking Social Security immediately, all because Wall Street and our beloved Social Security Administration has persuaded them they will die on time. Want proof? Check out their websites with their extensive references to life expectancy, but no mention whatsoever of these four words — maximum age of life.

Derek There’s also the spending flexibility that’s lost when an investment portfolio is spent down, as you try to delay claiming Social Security for as long as possible. You can’t ask the Social Security Administration to front you a sizable lump sum to, say, help a child out financially or take a once-in-a-lifetime trip. But if you’ve claimed Social Security benefits earlier than age 70, you’ve preserved more money in a portfolio and have more flexibility in how you want to spend it.

Larry This presupposes that people who collect early save their benefits to meet future emergencies. They generally don’t. It also ignores the fact that you can start your benefits whenever you want between 62 and 70. Moreover, taking Social Security early turns your child into your insurance company. If you run out of money, apart from your far-to-small Social Security benefit that you grabbed too soon, because you stubbornly refuse to die, your child will need to support you.

Derek, we don’t want our children to insure us and we don’t want to insure them — not when there is an excellent way to avoid doing so. Taking Social Security early places our children at greater risk. It’s not much different from proposing an insurance pool with our two kids in which we all forgo purchasing homeowners insurance and, instead, share the loss of any of our homes burning down — just between the three of us.

Derek Still, perhaps the most important risk that gets too little attention is the psychology of how people are more—or less—willing to spend different types of retirement income. A 2025 study from the Retirement Income Institute found that retirees spend about 80% of guaranteed, predictable lifetime income (such as Social Security, pensions and annuities), but only spend about 50% of portfolio income. The behavioral reluctance to draw down assets (versus spending income streams) suggests that delaying Social Security benefits might encourage underspending in retirement—and enjoying retirement less.

Larry Holding onto assets to buy yourself into a nice nursing home or leave money to your kids if you kick early makes sense. It’s not bad behavior. You can always save your Social Security to cover these potential expenses. But saving out of a far higher monthly check — potentially 76 percent higher — makes doing so far easier.

Derek In his book “Die With Zero: Getting All You Can from Your Money and Your Life,” hedge-fund manager Bill Perkins says many Americans who were diligent savers end up waiting too long to retire and underspend in retirement. Perkins argues that people focus too much on lifespan and not enough on health span, resulting in often waiting too long to retire or otherwise enjoy the nest egg they’ve worked hard to build up. If claiming Social Security earlier can help people overcome this psychological hurdle, then it’s a strategy worth considering.

Larry Derek, yes, some people underspend and others overspend. This is why I developed my company’s economics-based financial planning tool, MaxiFi Planner. It was ranked “Best Financial Planning Software of 2025” by Bankrate. Tell Bill to use it. He can enter his resources and learn, in a second, how much he can sustainably spend on a super cautious basis, assuming he earns the safe, i.e., TIPS rate of return.

Neither Bill nor you should encourage people to shoot themselves in the financial head because they are scared to spend. They can assure themselves they aren’t overspending at the cost of a good steak dinner. As for maximizing their Social Security benefits, they can do so either using MaxiFi Planner or Maximize My Social Security. The former program does full lifetime planning, incorporating all federal and state taxes. The latter costs a third of that dinner, but just handles Social Security.

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