Retirement / Social Security
7 min Read
By Michael Keenan
Your retirement planning likely includes getting income from the Social Security Administration, but when you start collecting Social Security benefits can have a big impact on your planning. The earliest you can collect is age 62. While collecting early will reduce your monthly benefit payment, you’ll potentially collect for more years. If you wait until after your full retirement age (66 or 67, depending on birth year) to start collecting Social Security, you can earn delayed retirement credits that will increase your benefits.
You might think that waiting for bigger benefits is better, but that’s not always the case. There is no definitive answer to when you should collect Social Security benefits and taking them as soon as you hit the early retirement age of 62 might be the best financial move. Learn why you might want to start taking Social Security at 62.
1. You’re Planning Your End-of-Life Care
Your Social Security benefits stop paying at your death, so if you die prior to collecting benefits, you’ll have missed out on benefits entirely. You need to figure out how to maximize your Social Security income instead.
For example, say you’re planning to wait until age 70 so you can claim the larger monthly benefit. If you die right before your 70th birthday, you won’t receive any benefits. It’s very difficult to predict how long you’ll live, especially if you’re in good health now. However, if you are suffering from a terminal or serious illness, the increased monthly benefit for delaying Social Security might not be worth it.
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2. You Have a Shorter Life Expectancy
The government incentivizes waiting to collect your Social Security benefits by giving you a larger monthly amount the longer you delay. For example, if you start collecting benefits at age 62 when your full retirement age is 66, your monthly benefit will be 71% to 73% of your full-age benefit. So if you expected your monthly benefit to be $1,000 per month at 66, you would only receive around $710 to $730 at 62.
Although a larger monthly benefit might sound great, keep in mind that you’d have to wait four years to get that extra $270 to $290 per month. You would receive $35,040 during those four years at the reduced amount of $730 per month.
When you start collecting $1,000 at age 66, an extra $230 per month won’t let you break even for 13 years compared to collecting early. If your health is declining and you don’t expect to live until you’re 79, you could receive more in benefits during your lifetime if you start claiming as soon as possible.
3. You Need To Pay Down Debt
If you have high-interest debt, claiming Social Security early can help you pay the debt down. Depending on the interest rate you’re paying, the 8% yearly boost to your benefits that you receive for each year you wait past full retirement age might not be worth the increased monthly benefit. Using the early benefits to reduce or eliminate your higher-interest debt earlier could mean you’ll be able to keep more of your benefits in the future.
4. You Can’t Work Anymore
Even the best retirement financial plans and projections can go awry. For example, you might have planned on working until you’re 70 so you could maximize your retirement benefits. If you get laid off at 62, however, and have difficulty finding another job, you might need to start taking your benefits just to get by.
Additionally, continuing to work in your industry simply might not be possible or healthy for you later in life. If your job requires manual labor, you might decide the risk of injury or other damage to your health isn’t worth continuing to work. In this case, the healthier lifestyle you’ll get by retiring early could outweigh the smaller monthly Social Security benefit.
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5. You’re Only Working Part Time
If you claim Social Security prior to your full retirement age while still holding down a job, you might have your benefits temporarily reduced if your work income exceeds the annual limit. For 2023, if you are under full retirement age, your benefits go down by $1 for every $2 your income exceeds $21,240. If you reach full retirement age in 2023, your benefits go down by $1 for every $3 your income exceeds $56,520 prior to reaching full retirement age. However, if you’re working part-time to help make ends meet, taking Social Security at 62 might make sense if you earn less than the limits.
6. No One Else Is Relying On Your Benefits
In the event of your death, a surviving spouse, minor or disabled child can receive money from the Social Security Administration based on the amount of your benefits. For example, a surviving spouse can receive between 71% and 100% of your benefit amount, depending on the surviving spouse’s age. A disabled child can receive 75% of your benefits each month even after you’re gone.
If no one else can qualify for benefits based on your record, you might want to retire early because no one is depending on that money. If everything else falls into place and you meet the minimum Social Security retirement age, consider collecting your benefits early and enjoying life.
7. You Already Have Your 35 Highest-Earning Years
Your Social Security benefits are based on your earnings in the 35 years that you had the most compensation. If you’re in your peak earning years, you could boost your benefits if you keep working a few more years and delay your benefits. However, if you aren’t going to increase your average earnings, such as if you’re only working part-time or you’ve had to retire early, you won’t miss out on the chance to boost your benefits with higher earning years. However, you’ll still receive a smaller benefit for not waiting until full retirement age.
8. You Expect Your Investments To Grow Faster Than the Increased Benefit
If you’re the next Warren Buffet, it’s possible you could do better taking Social Security early and you’re the next Warren Buffet, it’s possible you could do better taking Social Security early and investing the money than you could by waiting to take a larger benefit later. When weighing the best decision, consider the inflation rate, the rate your benefits increase and how much you can expect to earn in your portfolio. Keep in mind that benefits are guaranteed to increase by 8% per year for each year you wait after full retirement age. It’s hard to outperform that rate of increase in the market without investing in high-risk securities that could lose some or all of their value.
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9. You Want To Start a Business
Some people think of retirement as a time to relax, but you might see it as an opportunity to do things you couldn’t do before, such as starting your own business. For example, you might have put off starting a business before because you were afraid you wouldn’t be generating enough income. Social Security benefits could provide enough income to let you launch your business. And if your business is successful, the income it generates could be more than enough to offset the future reduction in benefits.
10. You’re Concerned Social Security Will Disappear
Some people are concerned about potential Social Security changes in the future, such as higher retirement ages, lower benefits or higher taxes on benefits. As a result, they want to take the sure thing as soon as possible. In a 2023 Social Security summary, the government said the Social Security trust fund will be depleted in 2032. Barring changes to the program, annual Social Security withholding taxes are projected to keep benefits at 77% of current levels beginning in 2033.
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Daria Uhlig contributed to the reporting for this article.
I am an experienced financial advisor with a deep understanding of retirement planning, particularly in the context of Social Security benefits. Over the years, I have assisted numerous clients in navigating the complexities of when to start collecting Social Security, taking into account various factors that influence this crucial decision.
In the article you provided, Michael Keenan discusses key considerations for individuals contemplating when to begin collecting Social Security benefits. Here is a breakdown of the concepts discussed and additional insights:
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Full Retirement Age (FRA):
- FRA is the age at which individuals can receive full Social Security retirement benefits.
- It is mentioned in the article that FRA is typically 66 or 67, depending on the birth year.
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Early Retirement Age (62):
- Individuals can start collecting Social Security benefits as early as age 62.
- Collecting benefits early results in a reduced monthly payment compared to waiting until FRA.
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Delayed Retirement Credits:
- Waiting to collect Social Security after reaching FRA earns delayed retirement credits, increasing the monthly benefit.
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Life Expectancy Considerations:
- Individuals with a shorter life expectancy might benefit more from starting Social Security early, considering the cumulative amount received over their remaining lifespan.
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Debt Repayment:
- Early Social Security benefits can be used to pay down high-interest debt, potentially outweighing the benefits of waiting for higher monthly payments.
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Unforeseen Circ*mstances:
- Unexpected events, such as job loss or health issues, may necessitate starting Social Security earlier than initially planned.
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Part-Time Employment Impact:
- Working part-time while claiming Social Security before FRA may result in temporary reductions in benefits if income exceeds specific limits.
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Dependents' Benefits:
- Surviving spouses, minor, or disabled children may qualify for Social Security benefits based on an individual's record.
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Earnings History Impact:
- Social Security benefits are calculated based on the highest-earning 35 years. The article suggests that if earnings are not expected to increase, waiting may not significantly boost benefits.
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Investment Strategy:
- Individuals expecting higher returns on investments than the guaranteed 8% annual increase in Social Security benefits might consider starting benefits early and investing the money.
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Entrepreneurship in Retirement:
- Social Security benefits could provide financial support for individuals looking to start a business in retirement.
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Concerns about Social Security Changes:
- Some individuals may choose to start collecting benefits early due to concerns about potential future changes in Social Security, such as higher retirement ages or lower benefits.
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Social Security Trust Fund Projection:
- The article mentions a 2023 Social Security summary stating that the Social Security trust fund is projected to be depleted in 2032.
This comprehensive overview emphasizes the multifaceted nature of Social Security decisions, highlighting the importance of personalized financial planning based on individual circ*mstances and goals. If you have specific questions or need tailored advice, feel free to ask.
