The Strategic Case for Early Social Security Claims in a Low-Return Environment

In an era where global bond yields hover near 4.00% and equity returns are increasingly uneven, retirees face a critical decision: when to claim Social Security benefits. Traditionally, financial advisors have emphasized delaying claims until age 70 to maximize monthly payments. However, the current low-return environment-marked by historically modest bond returns and volatile equity markets-compels a reevaluation of this approach. This article argues that, under today's economic conditions, early Social Security claims may offer a more strategic path for capital preservation, particularly when weighed against longevity risk.

The New Normal: A Low-Return Environment

The 2025 investment landscape is defined by subdued returns across asset classes. U.S. Treasury yields have stabilized between 4.00% and 4.25%, while U.S. government bonds delivered a 5.7% return for the year, outperforming equities in some cases. Meanwhile, the MSCI ACWI Index returned 14.0%, driven largely by tech sector gains and AI investments, but emerging markets lagged due to trade tensions and weaker global growth according to the report. For retirees, these conditions mean that traditional income-generating strategies-such as bond ladders or dividend stocks-are less effective than in previous decades.

Schwab's 2025 Long-Term Capital Market Expectations project U.S. aggregate bond returns of 4.9% over the next decade, down from 5.7% in prior forecasts according to the analysis. This decline, coupled with the Federal Reserve's anticipated rate cuts in 2026, signals a prolonged period of low yields. In such an environment, the opportunity cost of delaying Social Security claims diminishes, as the returns on alternative investments shrink.

Actuarial Reassessment: Discount Rates and Break-Even Points

The decision to claim Social Security early or delayed hinges on actuarial assumptions, particularly the discount rate used to evaluate future cash flows. Traditionally, models assume a near-zero discount rate for Social Security benefits, treating them as "risk-free" income according to financial modeling. However, this assumption ignores the reality that retirees often rely on investment portfolios with lower returns. For example, a 60/40 stock-bond portfolio historically yields a real return of 4.89%, which is barely above the projected bond returns of 2025.

Under low-interest conditions, the break-even point-the age at which delayed benefits outweigh early claims-shifts. Vanguard's analysis notes that for retirees with modest savings or high personal discount rates (6%–8% or higher), claiming at age 62 may be more advantageous. This is because the reduced monthly benefit is offset by immediate access to guaranteed income, which becomes increasingly valuable when alternative investments underperform.

Longevity Risk: A Double-Edged Sword

Longevity risk-the risk of outliving one's savings-remains a pressing concern. Over half of seniors fear their savings won't last, with healthcare costs and inflation cited as primary worries. However, the interplay between longevity and capital preservation is complex. Delaying Social Security claims increases monthly payments by up to 77% compared to claiming at 62, but this strategy assumes retirees can bridge the income gap through savings or investments. In a low-return environment, such bridging strategies are less viable.

For instance, a retiree who delays claiming until age 70 must forgo approximately $182,370 in lifetime discretionary spending according to the report. If those forgone funds are invested in a portfolio yielding 4.9%, the compounded returns may not justify the wait. Moreover, demographic trends show that lower-income individuals may benefit more from early claims. This underscores the need for personalized strategies that account for both economic conditions and individual health profiles.

Behavioral and Structural Factors

Despite knowing the benefits of delayed claims, 44% of non-retirees plan to claim before age 67, and only 10% intend to wait until 70. This behavior reflects a combination of behavioral biases-such as present bias-and structural challenges, including uncertainty about Social Security's solvency and immediate financial needs. Critics argue that the Social Security Administration's actuarial adjustments, which assume average life expectancy, fail to adapt to modern trends or low-interest realities.

Conclusion: A Strategic Shift in Retirement Planning

The 2025 low-return environment necessitates a recalibration of retirement income strategies. While delayed Social Security claims remain optimal for those with robust investment portfolios and long life expectancies, early claims offer a compelling case for capital preservation in today's climate. By leveraging the guaranteed, inflation-adjusted income of Social Security early, retirees can mitigate the risks of volatile markets and low-yield assets. As the Federal Reserve prepares for rate cuts in 2026, the window for optimizing this strategy may narrow further, making timely decisions critical.