2 Ways You Can Make More Money Claiming Social Security at 62

To claim or not to claim – that’s the question many Americans have about their Social Security benefits. There are pros and cons to claiming those benefits at 62, the earliest age allowed.

For many Americans, it makes sense to wait until full retirement age (currently 67 for anyone born in 1960 or later). However, there are two ways you can make more money in the long run by claiming Social Security benefits at age 62.

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The not-so-pleasant option

Let’s start with the not-so-pleasant way to make more money by claiming Social Security benefits early. If you don’t expect to live long enough, it doesn’t pay to delay receiving benefits.

Indeed, the main reason for claiming Social Security at age 62 is to avoid this risk. No one knows how their health will last.

How long do you have to live to wait until full retirement age to claim Social Security the better alternative? It depends on several factors, including the program’s cost of living adjustments (COLAs) and how much income you earn outside of Social Security.

However, using a break-even age between 78 and 79 years is a good rule of thumb. If you expect to live past that point, it usually makes more sense to wait until age 67 to claim Social Security benefits. If not, then claiming 62 can give you more cumulative benefits.

A more attractive alternative

However, there is a much more attractive alternative to making more money claiming Social Security benefits at age 62. But it’s still about delayed gratification. The idea is to claim Social Security at age 62, but not use the benefits to pay your bills. Instead, you should invest the money.

Obviously, you’ll need another source (or multiple sources) of income for this to work. One option is to continue working until you reach full retirement age or longer. There is a downside to this approach, however: Social Security will deduct $1 from benefits for every $2 earned above a certain threshold (in 2022, the cap is $19,560).

Another important requirement is that your investments must produce a positive return. If you put all your Social Security benefits into a high-risk asset that loses money, this approach will fail miserably.

However, there are assets that are quite safe. For example, government bonds often offer a yield of at least 2%.

Let’s assume your monthly Social Security benefit would be $1,500 if you wait until age 67. If you claim benefits at age 62, there is a 30% penalty that would reduce the monthly amount to $1,050. A safe return of 2% would drive out the breakeven point where waiting to claim Social Security until age 67 pays off after age 79. The higher your return, the more attractive it is to claim Social Security early and the to invest money.

Different risks

The best age to claim Social Security benefits depends on your willingness to take risks. Claiming benefits at age 62 will appeal to many to whom the old adage that “one bird in the hand is better than two in the bush” resonates.

However, many seniors are not as risk averse and have other sources of income that allow them to claim Social Security benefits early and invest the money. For these individuals, another old adage might be more appropriate: “The early bird gets the worm.”

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