Wealthy clients, having no immediate need for the money at retirement, often don’t take Social Security until age 70 or beyond. But what are the tax pluses and minuses of this move?

“For wealthy clients, Social Security benefits usually account for a smaller proportion of their overall retirement income, making it easier for them to replace this income temporarily with other savings,” says Rohan Sharma, a vice president of retirement income solutions at Ameriprise in Seattle.

Rich clients can also afford to wait for the maximum benefit, advisors note. “Most wealthy clients want the largest benefit, so many of them believe the best strategy is to wait until 70,” says Thomas Pontius, senior financial planner at Kayne Anderson Rudnick in Los Angeles. “Many may also still be working or have passive income.”

But the choice isn’t always clear. Clients should also consider the impact on survivor benefits, how long they expect to live, their expected investment returns and their cash-flow needs, says Richard Pianoforte, managing director at Fiduciary Trust Company International. For instance, if clients have health issues and likely won’t live past the age of 82, then the decision to delay has potentially lost them money, Pianoforte says.

When you defer benefits annually past your full retirement age, you can get an 8% increase on your full retirement age base amount until age 70, Pianoforte says. “If you were born after 1960 and decided to defer until 70, you would receive 124% of your original benefit as opposed to if you began collecting at age 67.” (Benefits don’t increase after age 70.)

And since wealthy individuals will pay income tax on 85% of their Social Security benefit payments, there’s a good reason for people in this cohort to wait: because they will increase their lifetime income while putting off paying income taxes, says Steve Parrish, co-director of the Center for Retirement Income at the American College of Financial Services in King of Prussia, Pa. “Since their benefits include the cost-of-living increases even while deferred, they’ll have an inflation-adjusted income they can’t outlive. They will eventually pay income taxes, but possibly when in a lower tax bracket.”

Another thing clients will have to take into account is what impact it will have on their spouses if they take Social Security sooner or later. For instance, a male client might not expect to live into his 90s, maybe because of his family history. But his wife might expect to live into her early 100s. This is a good reason for the husband to delay his benefits, especially if the wife’s lower-income history means her own benefits won’t pay as much.

Another reason wealthy clients file for benefits early is that they think they can invest the benefits. But Parrish says research he co-authored indicates that it’s uncommon for investment returns to beat the implied benefit of delaying Social Security, even for long-lived retirees using relatively aggressive asset allocation.

Delaying Social Security is playing a game of smaller benefits taken earlier versus larger benefits one doesn’t live to claim. Clients need to live 12 to 14 years past the age of 70 to get rewarded for taking the maximum benefit, advisors say. Again, they lose money if they aren’t living longer.

Pianoforte adds that clients who’ve delayed Social Security benefits could turn to withdrawals from their IRA instead. This would reduce the value of the IRA so the sting isn’t as bad when it comes time for required minimum distributions.

Pontius adds, “Some clients only have retirement savings in pretax vehicles and use distributions only from these accounts for living expenses. In this scenario, a client should not wait to take Social Security because their entire benefit can only be taxed up to 85%, versus 100% from the pretax account.”

Above all, the wealthy should not treat Social Security as an afterthought. “For some wealthy couples who live long lives,” Parrish says, “Social Security may be a million-dollar decision.”