The Unknown Risk of Claiming Social Security Early to Invest

How Much Claiming Early Really Costs You

Every year you claim before your full retirement age, your benefit shrinks. Every year you wait past it, up to age 70, your benefit grows. The exact numbers depend on your birth year and your full retirement age, but the pattern is the same for everyone.

Take Frank. His full retirement age is 67, and his benefit at that age, called his primary insurance amount, is $2,000 a month. If Frank claims at 62, the earliest possible age, his benefit drops by 30%, down to $1,400 a month. If he waits until 70, he picks up delayed retirement credits worth 8% a year for each year past 67, an increase of 24%, bringing his benefit to $2,480 a month.

That’s a $1,080 monthly gap between claiming at 62 and waiting until 70, for life, with annual cost-of-living adjustments applied on top of the higher number.

The Case for Claiming Early and Investing the Difference

Here’s the argument some retirees make: instead of waiting for that higher check, claim at 62, take the $1,400 a month, and invest it. If the market returns something like 6% a year on average, the thinking goes, the growth on eight years of invested checks could outpace what Frank would have gained by waiting.

On paper, run at a flat 6% every single year, this can look like a winning strategy. The problem is that markets don’t return 6% every year. Some years they return 25%. Some years they lose 20%. The average might work out to 6% over a long stretch, but the order those returns show up in matters enormously, and that’s where this strategy runs into trouble.

Why a Flat Return Assumption Breaks Down

This is called sequence of returns risk, and it’s one of the most overlooked pieces of this decision. Here’s the plain version: losing money early, while that money is supposed to be compounding, does far more damage than losing the same amount later.

Say Frank claims at 62 and starts investing his $1,400 monthly checks. If the market drops 20% in year one or two, that loss hits the account during its earliest growth phase, reducing the compounding that the entire strategy depends on. There’s no way to recover that lost growth later without taking on more risk or contributing more money.

Compare that to simply waiting. By delaying to 70, Frank is effectively purchasing a larger, guaranteed, inflation-adjusted income stream from Social Security, one that doesn’t depend on market timing at all.

A flat 6% return ignores sequence of returns risk entirely. It assumes calm, orderly growth every year, which isn’t how investing works. The claim-and-invest strategy can still work out. It also carries real risk that a flat percentage on a spreadsheet doesn’t show you.

What About the Breakeven Age?

Even without investing anything, there’s a simpler way to compare claiming early versus waiting: the breakeven age, or the point where the total dollars received from waiting catch up to and pass the total dollars received from claiming early.

Using Frank’s numbers: by the time he turns 70, the version of Frank who claimed at 62 has already collected 8 years of $1,400 monthly checks, $134,400 total. From age 70 on, waiting pays Frank $12,960 more per year ($29,760 versus $16,800). Divide $134,400 by $12,960, and the breakeven point lands around age 80.

That’s the answer with no investment growth and no taxes factored in, just the raw dollars. It means the claim-and-invest strategy needs to do more than simply grow the early checks. It needs to outpace what Frank would have collected anyway by living past 80, which is a realistic outcome for a lot of retirees today.

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Delayed Retirement Credits: The Other Side of the Math

It helps to see both directions side by side. Filing before full retirement age reduces your benefit. Filing after increases it, on a set, published schedule:

• Filing early: Your benefit drops by roughly 5/9 of 1% for each of the first 36 months before full retirement age, then by 5/12 of 1% for any additional months beyond that. Filed a full year early, at age 66 instead of 67, your benefit drops by almost 7%. Filed at 62, five years early, it drops by 30%.
• Filing late: Your benefit grows by 8% for every year you delay past full retirement age. Delayed retirement credits stop at age 70, so there is no increase in your Social Security benefit from waiting beyond that age.

Unlike the market, these numbers are guaranteed. There’s no bad year that erases them.

Why So Many People File at 62 Anyway

If waiting almost always produces a bigger guaranteed check, why do millions of Americans still file at 62, even though waiting produces a larger guaranteed benefit? Behavioral economists point to something called hyperbolic discounting, a well-documented tendency to take a smaller reward now over a larger one later, especially when “now” is right in front of you.

It shows up clearly in Social Security decisions. Offered $1,540 a month today or $2,728 a month eight years from now, most people take the smaller check today, even when they’ve spent years planning to wait. The pull of income right now is strong. That doesn’t make claiming early wrong for everyone. It does mean the decision deserves a clear-eyed look at the numbers rather than a snap decision made the week you turn 62.

Married? There’s Another Factor to Weigh

Married couples have one more piece to consider. When one spouse dies, the surviving spouse generally keeps the larger of the two Social Security benefits, not both. Delaying the higher earner’s filing can increase not just their own lifetime income, but also the income available to their surviving spouse, potentially for decades.

That makes the claim-and-invest decision more complicated for married couples than it is for a single retiree. The investment account belongs to the household either way, but a bigger guaranteed survivor benefit is something an investment account can’t fully replace.

How to Actually Test This for Your Situation

There’s no single right answer here, because the math depends on your health, your other savings, your tax situation, and how much you need the income now versus later. What matters is testing it properly instead of guessing.

A useful test looks at two things side by side, across different filing ages:

1. Your year-over-year account balance. Does claiming early and investing the difference actually leave you with more money at 75, 80, or 85, once realistic market ups and downs are factored in, not a flat average?
2. Your cumulative tax liability. Claiming earlier may mean drawing less from retirement accounts in your 60s, which can lower your taxable income during those years. That tax effect is easy to miss if you’re only looking at the Social Security numbers.

Good retirement planning software can model this with realistic, variable market returns instead of a flat percentage, which is the only way to see how sequence of returns risk actually plays out for your specific numbers. A financial planner who understands Social Security well can walk through this with you and stress-test the plan against a bad first few years, not just an average year.

A Realistic Checklist Before You Decide

• Calculate your actual benefit at 62, at full retirement age, and at 70, using your own earnings record from SSA.gov.
• If you’re considering investing the difference, ask what happens to that plan if the market drops in the first two or three years, not just what happens if it averages 6%.
• Factor in your tax picture, not just your Social Security check, since claiming age affects how much you draw from other accounts.
• Consider whether you’re married. Delaying can increase not only your own benefit but potentially a future survivor benefit for your spouse.
• Consider your health and family history. A shorter life expectancy shifts the math toward claiming earlier. A longer one shifts it toward waiting.
• Run the numbers with realistic, variable market returns instead of a flat annual percentage, ideally with software built for this or a planner who can walk through the scenarios with you.

The Bottom Line

Claiming Social Security early to invest the difference isn’t a bad strategy by definition, but a flat 6% return assumption hides the real risk. Compare realistic market outcomes against the guaranteed increase available from delaying benefits. The difference between those two risks is often larger than it first appears.

This article is for educational purposes only and is not personalized financial, tax, or legal advice. Your Social Security benefit and the right filing age depend on your specific earnings record, health, and financial situation. Confirm your own numbers at SSA.gov, and consider speaking with a qualified financial planner before making a filing decision.

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