Instead of looking at Social Security as a government entitlement that one should start receiving as soon as eligible, one should consider it an investment that will provide a far greater return on investment (ROI) by waiting than any other investment they have.

From a financial planning and personal wealth point of view, Social Security benefits should be looked at as an asset class that needs investment management coordinated with the rest of an individual’s portfolio and financial plan. Social Security is an opportunity for CPA financial planners to advise their clients on an important source of permanent cash flow.

Cash Flow

Social Security benefits have no residual value other than a spouse being able to receive the spouse’s benefits upon one’s death, with all benefits ceasing upon the second spouse’s death. Retirement and financial planning is partly about asset preservation and growth and partly about cash flow, so both need to be considered. In most instances, as individuals age, cash flow assumes a greater importance than asset values. Of course, asset values drive cash flow, but not in every situation. For example, investments in growth company stocks pay relatively low dividends with the expectation of increasing asset value. Likewise, investments in short-term bank certificates of deposit also provide low cash flow while providing safety of principal and liquidity.

When advising individuals who are set to start receiving Social Security benefits, CPAs should look at their overall asset allocation and cash flow. The advice the authors provide usually centers on their spending goals and cash flow. If their cash flow falls short, then either more aggressive investing needs to be done, spending requirements have to be reduced, or retiring later or working part time should be considered. Either way, cash flow drives the decision, not asset values.

When Benefits Start

Regular Social Security benefits can begin at age 62; however, the longer the benefits are delayed, the greater they will be up until reaching age 70. Payments on behalf of dependents are paid if a parent dies or attains age 65. A married person can receive benefits based upon their spouse’s record if it will be greater than if based on their own account. Benefits are reduced if one starts receiving them before the full retirement age (age 66 and a few months) and are increased if one waits until one’s 70th birthday.

A spouse can take benefits at age 62 (based on one’s own record) and increase these to half of a spouse’s when full retirement age is attained; this is the maximum, even if a spouse decides to wait until age 70 to claim increased benefits.

Benefits stop at death, but a surviving spouse can then receive a deceased spouse’s benefits if those benefits are greater than one’s own. Divorced spouses may also get benefits based upon their ex-spouse’s record. Disabled persons may also receive benefits.

Social Security entails some confusing rules, and most individuals would benefit from consulting with a CPA financial planner familiar with Social Security’s intricacies to determine the best course of action.

Asset Value of Social Security

Social Security may have no asset value, but its cash flow will greatly increase if benefits begin as late as possible, up until one’s 70th birthday. The return for waiting is an approximate 32% greater annual payout for the rest of one’s lifetime—that is a 32% ROI for waiting a little less than four years. Right now, 85% of the benefits will be taxed for most recipients, which still compares favorably with any other form of investment return. In addition, Social Security payouts increase annually based on an inflation factor, and all payments are guaranteed. As a cash flow source, this should be compared to other investments; very few will provide this great of a return.

Capitalization of Benefits

Another way to look at the asset value of Social Security is to capitalize the cash flow. While this article is concerned with the permanent guaranteed nature of Social Security benefits, many individuals seem interested in their pseudo–“asset value.” To determine this, a current rate of return is divided into the expected annual benefits. For instance, if projected benefits were $40,000 and the rate of return was 4%, the asset value would be $1 million. Likewise, a 2% rate of return would result in a $2 million pseudo–asset value.

Waiting Strategy

For those who do not need the money early, waiting until age 70 to receive Social Security benefits is a no-brainer. For those who do, withdrawing needed funds from other asset categories they already have is a viable strategy, even if they have to take early taxable withdrawals from retirement accounts and annuities or sell stocks. That strategy would entail spending down cash and some fixed income investments where the tax bite would be minimal. CPA financial planners can assist individuals by working out the numbers and measuring the results against the ROI of waiting for Social Security benefits to start.

Government Entitlement

A common concern with many individuals is that they will die before receiving sufficient Social Security benefits or “breaking even.” However, waiting will protect their cash flow for as long as they live, and therefore Social Security is guaranteed to be there as long as they live and with some built-in increases. Their cash flow will be protected should they live many years thereafter—they can never outlive this cash flow or this asset class. Rather than be concerned with “losing” money to Social Security, the authors suggest individuals think of Social Security as a secure cash flow “forever.”

Another common argument against delaying Social Security is that a better ROI is possible by receiving the benefits early and reinvesting them. While technically true, it is also highly unlikely unless the investments are made very aggressively. In today’s low-interest environment, it is not reasonable to expect a four-year 32% return just to break even; because early Social Security benefits will be reduced by income taxes on 85% of the payments, the amount to be invested will be that much lower. Furthermore, the 32%-increased benefits will continue to be paid annually and are guaranteed for the rest of the participant’s life, and will even experience cost-of-living increases. Of course, if payments begin early and the participant dies, the accumulated funds can be left to heirs. This raises a question: Is that accumulated amount sufficient to forgo the guaranteed-for-life benefits if the participant lives a long life? Again, if the goal is secure cash flow in the overall financial plan, then delaying is the right strategy.

Additional information

Further information about Social Security benefits, as well as access to individual earnings records and benefit estimates, can be found at The authors recommend that individuals periodically check their record and account information.

The purpose of financial planning services is to assist individuals in making decisions to secure their goals and financial future. Social Security benefits can be a source of permanent guaranteed cash flow and a key part of an individual’s overall financial plan. And while Social Security planning is complicated, effective strategizing can increase lifetime benefits by many thousands of dollars. It is incumbent upon advisors to understand the rules and to recommend solutions tailored to an individual’s personal situation.

Sidney Kess, JD, LLM, CPA is of counsel to Kostelanetz & Fink. He is a member of the NYSSCPA Hall of Fame and was awarded the Society’s Outstanding CPA in Education Award in May 2015. He is also a member of The CPA Journal Editorial Board.
Edward Mendlowitz, CPA/PFS, ABV is partner at WithumSmith+Brown, PC. He is also the author of a twice-weekly blog posted at