There exists a cost to the decision, but it might be worthwhile depending on one’s situation.
Upon researching Social Security retirement benefits, individuals are often advised to delay initiating these benefits for as long as possible. Although the full retirement age, which secures 100% of the intended payments, is between 66 and 67 years—depending on one’s birth year—waiting until the age of 70 to begin collecting can result in significantly higher monthly checks.
Conversely, there is the option of claiming benefits at the earliest possible age of 62, despite the reduction in payments it entails. This decision should not be taken lightly, as it is a permanent choice.
Patience Pays Off
Eligible individuals for Social Security’s retirement benefits can only receive 100% of their intended payments if they begin collecting at their full retirement age (FRA). This year’s FRA is 66 years and 10 months for those born in 1959. Next year, the FRA will be 67 years, unless legislation changes it again.
Delaying the claim can increase eventual payments by approximately 0.66% per month, or 8% per year. For those reaching their FRA this year or next, postponing benefits until age 70 could result in about a 25% increase in monthly checks. However, individuals should avoid delaying beyond age 70, as the Social Security Administration halts increases in benefits and will only retroactively pay for up to six months.
On the other hand, some may consider starting payments before reaching FRA. This choice substantially lowers the payment amount, potentially reducing it by up to 30% if claimed at age 62.
Reasons to Claim Sooner Rather than Later
Several compelling reasons might lead someone to accept lower payments by claiming benefits early. Primarily, urgent financial need may force individuals to access funds immediately, especially if working or monetizing real estate is not an option.
A strategic reason for early collection, even without an immediate need, is to use the cash flow productively, perhaps by investing in safe securities. Over the years from 2008 to 2021, when interest rates were low, exceeding the Social Security program’s rate of return was challenging. However, with current rates, many money market funds now offer returns surpassing the average expected Social Security benefits.
Additionally, there is concern over potential benefit cuts as the program faces technical insolvency. In such a scenario, claiming early might ensure full payments for as long as possible.
It is important to note that working while collecting early benefits is possible. While this may temporarily reduce Social Security payments, the reduction is later credited back, potentially increasing future benefits. This approach allows individuals to earn income while also benefiting from early claims.
Maintaining the Original Plan
If none of these reasons justify claiming Social Security benefits at age 62, it may be beneficial to adhere to the original retirement plan. Excessive adjustments and attempts at optimization may result in unintended consequences. Sticking to established retirement and financial plans is often the safest course of action.
Nonetheless, it is advisable to evaluate personal circumstances with a detailed assessment. For some, early collection of Social Security benefits could make financial sense.
