The Biggest Social Security Mistake Isn’t Claiming Too Early

Carlos, an experienced accountant based in Los Angeles, called me with a six-word question: "When should I claim Social Security?"

Then his Mexican pension pulled up a chair.

His final year of work sat down beside it. A planned move back to Mexico arrived, carrying two suitcases. The tax rules brought a calculator and no sense of humor.

Within minutes, Carlos's one question had formed a committee.

He had worked legally in the U.S. since 2009. His Mexican pension was expected to begin in January 2027. His initial plan was to continue working in the U.S. until approximately September 2027 and then return home to Mexico.

But even as an accountant, he struggled to navigate all the rules and scenarios of the Social Security Administration (SSA). He worried: Should he claim when the pension began, when work ended, after moving, at full retirement age or at 70?

Five dates. Each had an argument in its favor.

Carlos had come looking for a date. I needed to understand what he wanted that date to accomplish.

First confirm which choices are available

Before weighing the alternatives, I confirmed that Carlos qualified on his U.S. earnings record. We couldn't assume his Mexican work history would fill any gaps: The U.S.-Mexico Social Security agreement has not entered into force.

His remaining earnings also mattered. Claiming before full retirement age while still working could cause benefits to be withheld under the retirement earnings test.

SSA later adjusts the retirement benefit at full retirement age to account for affected months.

Fortunately for Carlos, his Mexican pension wouldn't trigger a reduction under the Windfall Elimination Provision (WEP) as it no longer applies to benefits payable for January 2024 and later. But overseas payment rules and tax residency still needed attention.

Those rules established the boundaries. They didn't choose a filing date for him.

The pension changed the question

Near the end of our conversation, I asked, "How much money will you need each month once you return to Mexico?"

"About $2,200," he said.

Carlos was single and already owned his home there.

"And how much will your Mexican pension provide?"

"The equivalent of $2,500 a month."

His expected pension exceeded his stated monthly budget by about $300, before adding any U.S. Social Security. We still needed to consider taxes, unexpected expenses and whether that budget would remain adequate over time. But the numbers changed the discussion.

Returning to Mexico and claiming Social Security were separate decisions. Once his pension began, he could consider going home, living on that income and delaying his U.S. benefit.

Delaying retirement benefits beyond full retirement age earns credits until age 70. That could give Carlos a larger monthly payment and, depending on his lifespan, greater lifetime benefits.

It was a reasonable option. Then he explained what the comparison had missed.

Waiting meant postponing generosity

"Ray, I was kinda thinking that if I had my Social Security money now, I could use it to take care of my family and friends."

For the first time, the committee went silent.

Carlos missed the people he loved. His parents had both died in their 60s. Many of the friends and relatives he wanted to return to were now in his age bracket. He didn't know how many years they would have together.

His parents' experience didn't predict his lifespan. It did help explain why a larger check years later held less appeal than the opportunity to help someone sooner.

An accountant understands that money has a time value. Carlos was also thinking about the value of time.

I quickly understood his real question: How much future income would he give up by claiming earlier, and was using that money sooner worth the trade-off to him?

That required calculation. It also required listening.

Give the math the right assignment

I explained that a complete individualized analysis could compare the filing dates, incorporate his remaining earnings and quantify the differences. The pension's apparent ability to cover his budget didn't make the alternatives financially identical.

It gave him room to weigh something beyond basic bill-paying.

My responsibility was to help Carlos understand the consequences of each choice. The largest number on his Social Security statement wasn't a commandment.

You don't need a foreign pension to face a similar decision. You might want to retire while a spouse is healthy enough to travel, reduce work to care for a parent or preserve dependable income for your later years.

Start by describing that objective. Then compare realistic claiming dates using your spending needs, other income, taxes and family circumstances. Include a longer-than-expected life in the analysis.

Wanting to enjoy the present doesn't eliminate the need to finance the future.

Carlos's pension gave him an option worth exploring. His wish to help people explained why he valued it.

A financial analysis could estimate the price of claiming earlier. It couldn't calculate the value of generosity delivered on time. The most useful question we discussed wasn't printed on his benefit statement: What is the money for?

Related Content

• 3 Questions That Help You Find Your Perfect Social Security Claiming Age
• The Average Social Security Check by Age
• Are You Much Older Than Your Spouse? Sorry, But Your Social Security Decision Isn't About You
• Why You Need to Start Your Social Security Claim 4 Months Early: 7 Steps to Prevent a Delay at the Worst Possible Moment
• Don't Let Low Tax Rates Lull You Into the Torpedo Zone: If You Have $1M to $3M in Tax-Deferred Savings, You Could Be Looking at Brutal Tax Bills in the Future

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.