Social Security Claiming Timing and Older Adults’ Financial Wellbeing

By Manita Rao and Zeewan Lee

In 2025, more than 4 million Americans turned 65 — the highest number ever in U.S. history. As baby boomers retire, there is growing concern about the financial security of older adults, especially those with inadequate savings. When to claim Social Security is, perhaps, among the most influential financial decisions for retirees. It affects monthly benefits that are essential to helping retirees meet their income needs over the course of their retirement years.

While there is a common perception that delaying claiming until the Full Retirement Age (FRA) of 67 or the latest claiming age of 70 is the best option for all individuals, this may not be optimal or feasible for everyone. For example, individuals with a disability or those in physically demanding jobs would find it more difficult to delay retirement. Even for other individuals, a variety of factors such as employment history and earnings should be factored into Social Security claiming decisions. Therefore, an assessment of the optimal time to claim Social Security and how sub- optimal claim timing affects the financial condition of retirees is essential to helping older adults improve their financial well-being in retirement.

Research Study Objective 

In this study, we provide a new approach to understanding the impact of Social Security claiming timing on older adults’ financial security by constructing an index that estimates the optimal time to claim Social Security. We then provide insights about how sub-optimal claiming, measured as the distance in years between optimal and observed claiming affects financial outcomes. We use a multi-step approach to construct the optimal claim timing index based on the age at which lifetime Social Security wealth is maximized.

Several factors influence lifetime Social Security wealth. In our computational analysis that constructs the optimal claim timing index, we incorporate five major components: an individual’s work trajectory, their discount rate, earnings history, any employment gaps over the course of their working years, and expected life expectancy (which varies by race and gender). Based on the optimal Social Security claiming timing, sub-optimal claiming is measured as the difference between when an individual actually claims and their optimal claiming age. Finally, we distinguish among individuals who claim earlier than their optimal time (sub-optimally early) from those who claim after their optimal time (sub-optimally late) to assess the differential impact on financial outcomes of each group. We use four main indicators of financial well-being: liquid savings, retirement assets, real estate wealth, and total wealth.

This research uses several data sources to conduct the analysis. The main data come from the Health and Retirement Study (HRS), a nationally representative biennial panel survey of individuals aged 50 or older, conducted since 1992.  We link HRS data to restricted Social Security Administration (SSA) data, which provides information about past annual earnings. We also link to the Working Trajectories dataset, which provides data on each individuals’ monthly labor force status. Using these linked datasets, we calculate lifetime Social Security wealth and monthly benefits for each individual in the sample for each possible initial claiming age.

Research Findings

Our findings provide a nuanced understanding of how Social Security claiming affects retirees’ financial wellbeing. Our main finding is that sub-optimal claiming timing is associated with lower financial stress that stems from cash flow constraints. Individuals who claim sub-optimally are likely to alleviate their cash flow concerns from the income they receive from Social Security. This finding aligns with previous research indicating that cash flow, or liquidity, constraints are a major driver of early Social Security claiming.

Interestingly, we find that sub-optimal claiming is not associated with lower retirement wealth. These findings suggests that claiming Social Security helps individuals meet their immediate income needs, potentially allowing them to leave their retirement assets (from DC and DB accounts) relatively untouched.

An important finding of our study is that sub-optimal claiming has a significant impact on real estate wealth. We find that individuals who claim sub-optimally early are more likely to have lower real estate wealth compared to those who claim optimally and those who claim sub-optimally late. It is plausible that these individuals rely on financing sources tied to their real estate assets to build up sufficient monthly income to compensate for lower benefits received due to early claiming of Social Security. However, further research is needed to better understand why early Social Security claiming is strongly associated with decline in real estate wealth. Overall, we find total household wealth of sub-optimal early claimers is significantly lower than that of other groups.

Taken together, our findings show that optimal Social Security claiming can significantly improve the financial prospects of older adults. Furthermore, the adverse effects of sub-optimal claiming are more pervasive among individuals that claim sub-optimally early and particularly prominent for real estate wealth, a source of wealth that creates a path for intergenerational economic mobility.

Policy Implications

This study provides a new approach to understand the optimal age at which individuals should claim Social Security and explores the impact of claiming sub-optimally early or late on financial well-being in retirement. Our findings show that while claiming early eases liquidity constraints, there are long-term implications for wealth creation and intergenerational wealth transfer.

From a policy perspective, Social Security is a vital source of income that helps older adults manage their living expenses during retirement years. While everyone desires to claim at the optimal time, some may not be able to, due to physical challenges or other financial considerations. Given the complexity of the Social Security claiming decision, policies that support financial advice and those that ease pre-claiming financial strain can help Americans make the best decision about Social Security claiming.

2025-02

Manita Rao is a Senior Policy Advisor, AARP Public Policy Institute, and Non-Resident Scholar, Georgetown University Center for Retirement Initiatives.

Zeewan Lee is an Assistant Professor, Lee Kuan Yew School of Public Policy, National University of Singapore.