Couples Risk 30% Social Security Cut by Claiming at 62 to Shield 401(k) Gains

Q: Why might a booming retirement account trick you into making a permanent Social Security mistake?

A booming 401(k) can create a false sense of safety and push people to claim Social Security too early for the wrong reason. The market rally may make retirement feel suddenly affordable, but Social Security timing is a permanent choice, while stock gains are temporary and can reverse. If someone with a full retirement age of 67 claims at 62, the monthly benefit is typically cut by about 30% for life. A check worth $2,400 at 67 would fall to about $1,680 at 62. By contrast, waiting until 70 could raise it to roughly $2,976 before future cost-of-living adjustments. That difference compounds over decades and also affects survivor protection for a spouse. This matters most for married couples because the higher earner’s benefit often becomes the survivor benefit later. If the higher earner files early, the household may lock in a smaller income floor for the surviving spouse for the rest of that person’s life. That is why advisers often favor a staggered strategy: let the lower earner claim earlier if needed, while the higher earner delays. Experts say market risk should be managed inside the portfolio, not by locking in a smaller Social Security check. A better fix for sequence-of-returns risk is to hold two to three years of planned withdrawals in cash, Treasury bills, or short-term bonds so stocks do not have to be sold in a downturn. The key mistake is letting a short-term market surge drive a lifetime Social Security decision.

1 articles · Updated · 24/7 Wall St. · Aug 24

A healthy couple in their early 60s may be tempted to start Social Security at 62 after the S&P 500 rose about 45%, using monthly checks to avoid selling stocks in a downturn.
For someone with a full retirement age of 67, that move cuts benefits by roughly 30% for life: a $2,400 monthly benefit falls to about $1,680 at 62, while waiting until 70 raises it to about $2,976.
The higher earner’s timing matters most because delaying boosts the survivor benefit, while an all-early strategy can leave the surviving spouse with a permanently smaller check decades later.
One alternative is staggered claiming—the lower earner files first while the higher earner waits—paired with a two- to three-year cash, T-bill or short-bond reserve to cover withdrawals during market stress.
The broader planning trade-off is that using portfolio assets first can trim future RMDs and create room for Roth conversions, but taxable withdrawals and health or Medicare premium effects still need modeling.