Q&A: Is it better to take Social Security earlier and invest it?

Dear Liz: I’m 64 and retired. My wife is 54 and still working. Half the people I talk to say take Social Security and just invest it, as you’ll make more than waiting until you get older. Others say that the tax hit isn’t worth it because my wife still works. I’ve talked to a couple financial people, and still get mixed answers. What is your opinion?

Answer: Social Security can be surprisingly complicated and many people don’t understand the nuances that should guide claiming decisions. In other words, half the people you’re talking to likely don’t know what they’re talking about.

Let’s start with a few basics, starting with the “tax hit.” If you have income other than Social Security, up to 85% of your benefit may be subject to tax. That doesn’t mean 85% of your benefit is taxed away. It means up to 85% is included in your taxable income, and subject to your tax bracket. In 2026, federal tax brackets range from 10% to 37%.

The earnings test can have a dramatic impact if you start Social Security before your full retirement age. The earnings test reduces your benefit by $1 for every $2 you earn over a certain limit ($24,480 in 2026). If you’re retired and not earning money, though, the earnings test doesn’t apply regardless of what your spouse might earn.

What starting early does do is permanently reduce your benefit. If you’re the higher earner, it also reduces the survivor benefit that one of you will get when the other dies. At that point, the smaller of a couple’s two checks goes away and the survivor has to make do with a single benefit.

If you delay, on the other hand, your benefit gets larger. After full retirement age, delayed retirement credits add 8% each year until your benefit maxes out at age 70. This guaranteed return is about twice what you’d currently get from any other low-risk investment, such as one-year Treasuries. You might earn more in the stock market, but you also could suffer losses.

Copious research shows that most people are better off delaying. You can start by reading “How Much Lifetime Social Security Benefits Are Americans Leaving On the Table?” by David Altig, Laurence J. Kotlikoff & Victor Yifan Ye for the National Bureau of Economic Research at https://www.nber.org/papers/w30675.