High-net-worth individuals (HNWIs) tend to have more wealth-enhancing strategies at their disposal than most people, and that’s even the case when it comes to Social Security.
Don’t get me wrong: Everyone who collects Social Security operates within the same rules based on their circumstance—retirees, disabled workers, and survivors. But there’s a lot of variance built into those rules that allow people to make tailored decisions for themselves. And that variance provides a lot of room for HNWIs to apply a variety of financial strategies to optimize their benefits.
Let me show you some Social Security strategies that are specifically geared toward high-net-worth individuals. I’ll discuss how to maximize your payout and limit your tax burden, and show you some of the best ways to use your benefit.
Disclaimer: This article does not constitute individualized financial advice. The information appears for your consideration, not as a personalized recommendation. Act at your own discretion.
Social Security Tips for the Wealthy
Social Security isn’t likely to be the primary source of retirement income for HNWIs—indeed, depending on your level of wealth, it might not even be a significant source.
As a result, Social Security sometimes becomes an afterthought, with mental resources spent on more sizable income streams.
But money is money, and no one should sleep on their Social Security benefits. It’s a guaranteed income stream that lasts your whole life, and it even has an annual cost-of-living adjustment (COLA) that helps your benefit keep pace with inflation. It’s also at least partially (if not completely, depending on your income) shielded from federal taxes, and it’s usually not taxed at all at the state level.
So, if you’re an HNWI who’s reconsidering their laissez-faire approach to Social Security, read on, and I’ll show you several tips for optimizing your benefits.
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1. Use Your Benefit to Fund Long-Term Care Insurance
Original Medicare doesn’t cover a number of expenses, among them stays in assisted living or long-term care (LTC) facilities. To address this health care blind spot, you can buy long-term care insurance—and you can get a bit of a tax benefit by using your Social Security benefits to do so.
Generally speaking, benefit payments received from life insurance and LTC insurance aren’t taxed at the federal level. So if you incur long-term care expenses, but your plan covers those expenses, you won’t pay taxes on those benefits. That’s better than the alternative, which is making withdrawals from your retirement accounts—not only will those withdrawals be taxable (if you’re withdrawing from a tax-deferred account), but you’ll lose the growth potential of any money taken out.
And those withdrawals could be considerable. According to Schwab, in 2023, the median annual outlay was $75,504 for an in-home health aid, with that cost rising to $116,800 for a private room in a skilled nursing facility. The average American needs three years of long-term care during their lifetime, meaning the total could be around $226,512 for an in-home health aide or $350,400 for a private room in a nursing home.
Related: Health Care Costs in Retirement [Amounts & Types to Expect]
2. Reconsider Your Timing
If you can afford to do so, it pays to wait until age 70 to claim Social Security.
Very briefly: You can start collecting Social Security as early as age 62, but you’ll only receive a partial benefit for the remainder of your life. The closer you get to full retirement age (FRA), the fuller your benefit will be, up until you reach FRA (between age 66 and 67, depending on your year of birth), at which point you’ll collect 100% of your benefit.
However, if you delay collecting your benefit past FRA, you’ll earn “delayed retirement credits” that push your benefit north of 100%. These extra credits max out at age 70, however, so it doesn’t benefit you to continue delaying benefits after you’ve turned 70.
Also note there’s a cap on the maximum Social Security retirement benefit payable. For 2025, the maximums were set to the following:
- If you retired at age 62, your maximum benefit would be $2,831.
- If you retired at your FRA, your maximum benefit would be $4,018.
- If you retired at age 70, your maximum benefit would be $5,108.
Wondering how close you are to reaching the cap for your age? In your Social Security Administration account, you can see an estimate of how much Social Security you’ll receive.
Lastly, maxing out your benefit number isn’t always the best course of action. For instance, if you expect to have a short life expectancy that wouldn’t extend much farther past FRA, it might make more sense to begin collecting at least a partial benefit as soon as you’re able.
Related: 12 Income Sources That Don’t Affect Your Social Security Benefits
3. Combine Social Security With Strategic Investment Withdrawals
Every soon-to-be retiree needs to have a retirement withdrawal strategy that dictates how much they’ll withdraw from savings each year and which accounts they’ll focus withdrawals on first.
One common strategy is to coordinate Social Security benefits with income from Roth IRAs to keep your taxable income below various triggering thresholds (Social Security taxation, ordinary income, etc.). Doing so can also help you reduce or avoid Income-Related Monthly Adjustment Amount (IRMAA) surcharges for Medicare Parts B and D.
If you don’t have any Roth accounts to utilize, and you’re an HNWI, chances are you make too much to execute a standard Roth conversion. But you could still pull off a backdoor Roth conversion, in which you make nondeductible contributions to a traditional retirement account, then convert those funds to a Roth account. While this strategy has its own unique tax implications, it still might be worth considering.
Related: Don’t Make These Retirement Account Withdrawal Mistakes
4. Coordinate Social Security With Your Spouse (If Applicable)
A married individual may be eligible for a Social Security spousal benefit that is greater than what they would have been eligible to receive on their own. This can occur when one spouse qualifies for a significantly larger benefit than the other. The maximum spousal benefit amount is 50% of what the other spouse is eligible to receive if the other spouse were to collect benefits at FRA.
Collecting spousal benefits doesn’t reduce your partner’s benefit amount. So if you’ll receive more overall this way than you would collecting your own benefits, it might make sense to do this. Talk with your spouse to see whether taking your own benefit or your spouse’s would result in a larger payout.
One last note: If you divorced after a marriage that lasted 10 or more years, you might be eligible for spousal benefits, too.
Related: How to Maximize Social Security Spousal Benefits
5. Fund a Charitable Remainder Trust
A charitable remainder trust (CRT) is an irrevocable trust in which you can place various financial assets, which then become an income stream for you or your beneficiaries, while the remainder is eventually donated to charity. There are two basic types: charity remainder unitrust trusts (CRUTs) and charity remainder annuity trusts (CRATs).
For instance, you could choose to receive 5% of the assets per year over a 20-years period. As long as you meet certain requirements—most importantly, that the remainder donated to charity is at least 10% of the initial net fair market value of all assets placed in the trust—you’ll enjoy that income stream, as well as a partial upfront tax deduction in the year of contribution based on whatever portion of the assets is expected to eventually go to the charity.
Because cash is one of the assets you can place in a CRT, you could in theory place, say, a year’s worth of Social Security earnings into the trust, and the deduction would help reduce your income (and thus potentially reduce your tax liability on your benefits).
That said, CRTs are more typically used to optimize much larger windfalls. For instance, if your wealth was highly concentrated in shares of a company, you had a low cost basis in that stock, and you sold off a large portion of that stock, you would inherit a sizable tax bill. Placing that stock in a CRT, however, could significantly reduce that burden while allowing you to enjoy the financial benefits for years down the road.
If you’re in a similar situation, or otherwise believe you’ll enjoy a large windfall from the sale of assets, consider talking to a financial advisor about CRTs and other ways to tax-optimize those earnings.
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