Learn how to maximize your Social Security and pension benefits in your retirement income plan.

Just because you’ve stopped working doesn’t mean you’ve stopped making money. In fact, some of the most important financial decisions you’ll ever make happen right at the start of retirement—and many of them are one-time, often irreversible choices. Get them right, and you could add hundreds of thousands of dollars in lifetime income. Get them wrong, and you may leave that money on the table.

That’s why Step 2 of creating your retirement master plan is all about building a lifetime income plan. At its core, this step focuses on Social Security and pensions, two of the most significant income sources for retirees. Unfortunately, I see too many people making decisions based on myths rather than math. Let’s walk through some of the most common misunderstandings and what you can do instead.

Myth #1: “It doesn’t matter when you file for Social Security—it all evens out.”

This is one of the biggest misconceptions I hear. People think that if you file early at 62, you’ll get a smaller benefit for longer, and if you file late at 70, you’ll get a larger benefit for fewer years—so it must all balance out.

That logic might have been true back in 1983, the last time major Social Security changes were made. But two big things have changed since then:

Interest rates are much lower. In the 1980s, if you took your benefits early and invested them, you could count on double-digit bank interest rates. Today, that’s just not the case. We’re living longer. Advances in medicine and healthier lifestyles mean people are living well into their 80s and beyond. The longer you live, the more valuable waiting for that larger Social Security check becomes.

The bottom line: today, the math overwhelmingly favors waiting, especially for the higher earner in a couple.

Myth #2: “I’ll just take Social Security early and invest the money myself.”

I see spreadsheets all the time where people try to “prove” that filing early and investing the money comes out ahead. But those spreadsheets rarely account for important realities:

• Inflation adjustments. Your Social Security benefits grow with inflation, something no spreadsheet investment can perfectly replicate.
• Survivorship benefits. If you’re the higher earner, delaying increases the amount your spouse may receive if you pass away first.
• Tax advantages. Social Security is typically taxed more favorably than withdrawals from IRAs and 401(k)s.

Research has shown that, on average, you’d need an 8% annual investment return to come out ahead by filing early. That’s possible in the market, but it’s far from guaranteed—whereas the higher Social Security benefit from waiting is.

Myth #3: “I won’t live long enough to reach the break-even point.”

Some people dismiss delaying Social Security because they think the odds of living long enough to benefit just aren’t there. But the statistics tell a different story.

• A 62-year-old man in average health who doesn’t smoke has a 70% chance of living to 80.
• A 62-year-old woman has an 80% chance of reaching 80.
• For couples, the odds are even stronger: there’s a 90% chance that at least one spouse will live past 80.

So if you think delaying isn’t worth it because you might not live long enough, the math shows that you’re actually betting against the odds.

Why Social Security Is Like Insurance

It helps to think of Social Security for what it really is: old-age and survivor’s insurance. It’s designed to protect you if you live longer than expected, if inflation rises faster than you planned, or if your investments don’t perform as well as you hoped. Filing decisions should be based on maximizing that protection for you and your spouse.

What About Pensions?

Many retirees also have pensions, and similar myths apply. But there are two key differences:

No inflation adjustments. Unlike Social Security, most pensions don’t grow with inflation, which means their purchasing power decreases over time. Lump sum vs. monthly payments. With pensions, you often face the choice between taking a lump sum or monthly payments.

Here’s where caution is critical. Financial advisors sometimes push clients toward lump sums because they get paid for managing that money. Monthly pensions don’t generate fees, which means there’s less incentive for advisors to recommend them—even if they’re the better choice for you.

That’s why you need to do the math carefully. Compare the actuarial value of the monthly payment versus the lump sum, and factor in survivorship benefits for your spouse. This isn’t a decision to make lightly.

Turning Myths Into Math

The truth is, most people make costly mistakes with Social Security and pensions. Studies show that couples, on average, lose about $180,000 in lifetime benefits because of poor Social Security decisions. That’s why I urge you to base your retirement plan on math, not myths.

Your Social Security and pension are designed to provide steady, reliable income for life. By making smart, math-driven decisions today, you can ensure that income is maximized—not just for you, but also for your spouse and family.

Final Thoughts

Step 2 of your retirement master plan is all about creating your lifetime income plan. That means thinking carefully about Social Security, pensions, and how they’ll support you over the decades of retirement. Don’t rely on guesses, gut feelings, or myths. Instead, take the time to do the math—or better yet, work with someone who can walk you through the analysis.

If you want to dig deeper into these strategies, you can check out my book Retire Today: Create Your Retirement Master Plan in Five Simple Steps at JeremyKeil.com. And for more resources, head over to FiveStepRetirementPlan.com.

Because knowing more about your money will help you feel better about your money—and that leads to making better money decisions in retirement.

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