It pays to think through your Social Security strategy

Q: Do you agree that if one's retirement savings is large enough, it makes sense to take Social Security first and delay drawdowns from the retirement balance?

A: The earliest you can claim Social Security retirement benefits is age 62. Your full retirement age is when you are entitled to 100% of your benefit, currently 66 years and several months, depending on your birth year. Full retirement age will reach 67 for those born in 1960 and after. For every year past your full retirement age you delay filing, your payments increase by some 8% until age 70.

When to claim Social Security is a complicated decision that involves weighing a variety of factors and assumptions, such as guesstimates about life expectancy, health concerns, employment situation, portfolio composition and lifestyle goals. Married couples should also coordinate their Social Security claiming strategy.

New York-based Social Security Advisors, a benefits consulting firm, calculates that a 3% return on investment is the break-even point in addressing the issue. "If you can safely and comfortably earn at least a 3% return in the portfolio it can make sense to claim Social Security early and let the money in your portfolio continue to grow," said Matthew Allen, co-founder of Social Security Advisors.

Rate of return is only one consideration, he cautions. For instance, the risk profile of a retirement portfolio and Social Security are different. A market axiom is the only way to create an opportunity to earn a higher return is to take on more risk. For retirement savers that typically means an exposure to stocks.

In contrast, the 8% boost in payments for every year you delay claiming benefits past your full retirement age is a legislative guaranteed return to waiting. You will earn an improved benefit from the Social Security annuity that comes with automatic cost of living adjustments that you can't outlive.

Allen suggests exploring a hybrid. For married couples it can pay for the higher-earning spouse to delay claiming while the lower-earning spouse files early. The advantage of this strategy is the surviving spouse gets their own benefit or 100% of the deceased spouse, whichever is higher.

There are other considerations, such as lifestyle desires. Perhaps you want to retire soon and travel (perhaps claim earlier) or maybe you want to embrace an encore career (and delay claiming). Whatever you decide, carefully thinking through your Social Security strategy pays off big.

Chris Farrell is senior economics contributor for "Marketplace" and Minnesota Public Radio.