Let’s look at the factors involved in making this key decision — which doesn’t always come down to a strict maximizing-your-dollars calculation.
By Dan Caplinger
When to claim Social Security is one of the most important decisions you’ll make about your retirement. Most people could start getting benefits when they turn 62, but there are many factors that go into determining whether claiming that early is the best decision. Here are some of the things that you should consider in making your choice.
The key trade-off: less now or more later
The fundamental question here is whether you want a larger number of smaller checks starting now, or a smaller number of larger checks starting later. Taking Social Security at 62 means all of your payments will be 25% less than what you’d get at full retirement age of 66, while waiting until 70 gives you a 32% boost over your age-66 Social Security check.
(And in fact, because the amount you get is based on your 30 highest-earning years, the gains from waiting could be larger: The percentages above don’t factor in the added boost to your checks you could accrue by adding a few more end-of-career, higher-income years to the benefit calculation.)
The potential to get larger checks is the main reason why many financial advisors suggest waiting beyond age 62 whenever possible. However, other factors can play a key role in the decision.
Can you afford to wait?
Unfortunately, many people don’t have a realistic option of waiting to take Social Security later than age 62. If you’ve been laid off or given early retirement from your job, and haven’t been able to find work, Social Security might well be your only source of regular income. In that case, taking benefits at your first opportunity may be necessary if you want to avoid being unable to make ends meet at all.
Life expectancy
How long you’re likely to live is a question that financial advisors tend to focus on when giving advice on when to claim Social Security. Those with healthy family histories have better odds to get more out of waiting beyond age 62, because the larger size of the payments they get should continue long enough to outweigh the impact of receiving a lower number of payments in their lifetime. If risk factors lead you to assess your life expectancy more pessimistically, then claiming earlier can be the better financial option.
Family situation
Claiming Social Security benefits opens the door for a spouse or eligible children to claim family benefits on your work history as well. If you don’t have close family who are eligible for benefits, then you can make your decision based solely on your own personal needs. But if you do have family members who could make Social Security claims, the decision you make can have an impact on their ability to get benefits as well.
Other financial resources
Those who have other sources of retirement income, such as a workplace retirement plan, a monthly pension benefit, or personal savings, have more flexibility about when to choose to start taking Social Security. For instance, if you have substantial assets in a 401(k) or traditional IRA, then tapping those accounts to fund your early retirement years can let you defer Social Security past age 62 in favor of getting larger monthly payments later. However, if the tax consequences of immediate retirement account withdrawals are unappealing to you, then you can plan to supplement smaller monthly Social Security checks with future distributions from IRAs and 401(k)s at a more measured rate.
Priorities in enjoying retirement
Finally, most of the financial analysis you’ll see on Social Security centers on the pure dollar amount of the Social Security benefits you’ll receive. What analysts can’t do is assign your own personal value not just on how much money you get but also when you get it. Many people take early benefits at age 62 because they’re willing to accept less money later in order to have the means to pursue their retirement dreams early in their golden years. That’s consistent with economic theories of utility, even though it can end up leaving dollars on the table from a pure mathematical standpoint.
Deciding whether to claim Social Security at 62 isn’t easy, and the choice you make will have consequences for the rest of your life. By looking at these factors, you can make your own personal assessment of which strategy makes the most sense for you.
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