For some high-net-worth investors with tens of millions of dollars, monthly Social Security checks amount to a rounding error. But it's still a mistake for these people not to optimize their benefit.
Some very wealthy people figure that an extra $4,000 to $10,000 per month won't move the needle in their financial plan. But these well-to-do couples are missing the fact that their total benefit over two decades could total $2 million if both spouses wait till age 70 to take benefits. And that seven-figure sum is real money no matter if your net worth is $2 million, $20 million or $200 million.
Many wealthy people don't see the value in their Social Security benefit. Nor do they grasp how they can optimize this retirement income stream and further improve their finances, says Ash Ahluwalia, head of Social Security planning at OneTeam Financial. Even if you don't need the income to pay bills, though, you can use the benefit creatively to boost your estate.
"Just because you don't need it, doesn't mean you shouldn't take it and be smart with it," said Ahluwalia, who specializes in optimizing Social Security benefits. "Social Security is often off their radar. In their mind, they (think) it's not worth that much. Why bother?"
That's a misguided approach, says Ahluwalia. Social Security benefits should be viewed strategically, just like any other financial asset.
Get Strategic With Social Security
If they do take Social Security, high-net-worth couples often defer to CPAs or conventional wisdom that says since they don't need the money, they should defer taking benefits until age 70 to maximize their return.
Ahluwalia takes a more strategic view. He says wealthy retirees should do just the opposite. Don't wait until age 70. Take Social Security earlier and use the income to bolster your finances.
You may take Social Security earlier, say at full retirement age. You can then use the income you earn in the first year to lock in all that $2 million lifetime benefit in a tax-efficient way with an irrevocable life insurance policy.
Income from Social Security checks can also fund potentially big bills like long-term care. It can also be used as a tax-saving tool by gifting Social Security income to charity or leaving money to heirs. "The policy proceeds could be used to pay estate taxes or to leave a legacy to children, grandchildren or charity," said Steve Azoury, owner of Azoury Financial.
Boost Your Estate Plan With Social Security
There are multiple ways to turn Social Security into a tax-saving estate tax tool for the wealthy, says Ahluwalia. First, you can use life insurance to lock in a "lifetime" of Social Security benefits.
Consider this simple back-of-the-envelope example. Let's say the higher-earning spouse gets $4,000 in monthly benefits at full retirement age. The other spouse (who didn't work or worked for less than 10 years and, therefore, doesn't qualify for benefits) takes the $2,000 maximum spousal benefit, which is 50% of the higher-earning spouse's benefit at full retirement age. That's a total benefit of $6,000 a month, or $72,000 a year.
The typical advice for people who don't need the money is to defer taking Social Security until age 70 to maximize their benefit and avoid paying taxes on the benefit for three more years. IRS rules say 85% of Social Security income is taxable for married couples filing jointly with income above $44,000.
What's the risk of doing it this way? All that extra dough will go into your estate and cost you more in personal taxes. "But the biggest issue if you're worth $100 million isn't income taxes, it's estate taxes," said Ahluwalia.
Managing Estate Tax
The estate tax is 40%. So, that's how much tax you will pay for every dollar of income that's over the federal estate tax exemption. In 2025 the exemption is $27.98 million for married couples. So, if both spouses live 20 years in retirement, they'll get $2 million in benefits, and they'll pay income taxes along the way and potentially higher estate taxes when they pass.
A bigger risk is if the couple gets hit by a bus and pass away before they collect a single check at age 70. "Social Security keeps the two million bucks," said Ahluwalia.
This is where high-net-worth folks need to strategize ways to make better use of their Social Security benefits.
Ahluwalia advises wealthy clients to take benefits at full retirement age and use the proceeds to buy an irrevocable life insurance trust, which holds the policy outside of their taxable estate. After state and federal taxes, the $72,000 benefit at full retirement age will be closer to $45,000, or the rough amount needed to fund a pair of $1 million, 20-year term life policies.
So, the wealthy couple can use the after-tax proceeds of one year of their Social Security benefits to lock in the full estimated $2 million in benefits they would earn if they both live 20 more years beyond age 67.
"It's estate tax free," said Ahluwalia. "They've converted a 'potential' $2 million income stream and turned it into a 'guaranteed' $2 million income-and estate-tax free asset. We're helping them solve an estate tax issue."
Ahluwalia says he has a client, a New York surgeon, who wanted to leave $2 million to his grandkids. "So I said, 'Great, let's get Social Security to pay for it.'" This strategy turns a potential income stream into a 100% tax-free asset, says Ahluwalia.
Use Social Security To Fund Long-Term Care
The missing link in many people's financial plans is money to cover the cost of long-term care later in life if it's needed. A 65-year-old retiring in 2025 can expect to spend an average of $172,500 on health care and medical expenses throughout retirement, says Fidelity Investments' 2025 Retiree Health Care Cost Estimate. And these costs can run much higher for elderly folks diagnosed with dementia and other cognitive impairments who require more expensive memory care services.
So, how can Social Security help defray the cost of long-term care, which regular health insurance or Medicare don't cover?
One option is to self-fund. But a more tax-efficient way is to add a long-term-care (LTC) rider on a traditional life insurance policy, says Ahluwalia. The premium is more expensive, but there are advantages.
Let's go back to the tax-advantaged $2 million life insurance policy placed into trust discussed above. That traditional policy only pays a death benefit. But a hybrid life policy with the LTC rider creates two uses for the policy.
If a long-term-care event triggers a benefit, the beneficiary can now tap a portion or the entire death benefit to pay for LTC expenses. If you have a qualifying event, the insurance company will pay you either a lump sum or a percentage of your policy's death benefit each month, according to Progressive, an insurance company. Monthly allowed amounts vary but could range from 1% to 4% of the death benefit.
Consider An Example
Let's say each spouse has a $1 million policy. A 2% draw each month provides $20,000 per month tax-free to pay for LTC costs, taking a large bill off the table. Payouts you get for long-term care are subtracted from your final death benefit.
"So, what you're doing is you're spending your death benefit down while you're still alive to pay for long-term care costs," Ahluwalia said.
The benefit of a hybrid policy vs. a straight-up long-term care policy is a standard LTC policy is "use it or lose it." In other words, if you buy an LTC policy and you never need coverage, all those premiums are wasted. In the hybrid approach, you know you will get the total death benefit either when you die, or through a combination of LTC payouts when you're alive and a partial death benefit when you pass.
"If you never use the LTC benefit in a hybrid policy, it pays the full death benefit," Ahluwalia said. "Now you have two uses for your life insurance."
Another benefit: The policy is placed in the trust. It's outside your estate and not subject to taxes. In contrast, if you pull money out of a traditional IRA or 401(k) to pay LTC expenses, you'll have to pay taxes on the amount you withdraw.
"This type of policy would prevent high-net worth individuals from possibly having to take out taxable distributions to pay for this care in the future," Azoury said.
Leverage Social Security To Fund Tax-Advantaged Charitable Giving
When it comes to giving, you can use Social Security in two ways, says Ahluwalia. You can use your post-tax benefit checks to make tax-deductible charitable contributions. Or you can leverage your benefit by gifting a life insurance policy to a charity, paving the way for a much larger charitable contribution when you die.
In the latter case, you could place the insurance policy in an irrevocable trust and use Social Security benefits to pay for the premiums. The policy beneficiary would be a single charity or multiple charities.
Use Social Security Income To Fund Gifts
You could also use benefit checks to give gifts to anyone, says Azoury. In 2025, individuals can gift up to $19,000 without any tax consequences and lower their estate value in the process.
"All in all, even though the income isn't vital to a high-net-worth individual's lifestyle, it can be a nice bonus to their overall financial situation," said Azoury.
