The Danger of Delaying Social Security

Should you take Social Security as early as possible or delay it? This is one important consideration when weighing the decision.

For federal employees, Social Security is a big deal. It is one of the legs of your three-legged income stool in retirement (TSP, Pension, Social Security). 

Knowing when to file for Social Security is one of the biggest decisions you make in retirement, so it is really important to not mess it up!

Paper Burns Quick

On paper (and if you talk with most financial advisors), delaying Social Security is often the best strategy, but in real life, it comes with risks. 

Don’t get me wrong, there are major benefits/risks for both taking it early or delaying it. However, this article is going to focus on one of the biggest risks of delaying that is rarely talked about.

The Big Risk

For this example, let’s say you are retiring at 62 and you can start Social Security right away or you can delay Social Security to secure higher payments in the future. 

If you did delay, you would take extra money from your Thrift Savings Plan (TSP) (or other investments) in the meantime knowing that you’d need less from your investments after your higher Social Security payments started.

So what is not to like? You lock in higher Social Security payments for the rest of your life and you can maintain your standard of living through all of it. 

There is one big potential problem. 

Order Matters

Over the last 100 years, the stock market has grown by an average of 10% per year. So in retirement as long as you withdraw no more than 10% then you’ll never run out of money, right? 


The average growth has been 10% but some years are plus 22% and some years are down 16%. So what happens if the first 5 years of your retirement happen to be really bad years?

Then it would be a double whammy. You’d be depleting your funds through withdrawals while the market downturn was also depleting your funds. This combination often irrecoverably lowers your investments in a way that it never recovers. 

This risk is has a technical name: Sequence of Returns Risk.

In a nutshell, this is the risk that the first years of your retirement are bad which can forever stunt the growth for the rest of your retirement. Needing to withdraw extra money from your investments because you are delaying Social Security exposes you even more to this risk. 

Goes Both Ways

But if the first few years of your retirement happen to be great years in the stock market, then your money has a much higher base to grow from for the rest of your life. Consequently, the sequence of returns can help or hurt you.

Always Pros/Cons

One way to lower your exposure to this risk is by taking your Social Security early. This would allow you to withdraw less money in the early parts of your retirement which would lessen the impact of any bad market years, but that doesn’t mean that everyone should take benefits early. There are always risks/rewards that need to be weighed out in the context of your unique situation. 

Delaying Social Security secures a reliable high monthly payment for the rest of your life that isn’t reliant on the stock market. However, you have more control over your investments than you do over the politicians who might adjust the Social Security program in the future. 

Final Thoughts

This article is far from everything you need to consider when making plans for Social Security, but it can be one more data point that you can factor into your decision. 

Having a great retirement comes down to applying the facts to your personal situation. 

About the Author

Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.