3 times claiming Social Security at age 62 could be your smartest move – Community News
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3 times claiming Social Security at age 62 could be your smartest move

You can claim social security from the age of 62, but should you? Experts often recommend postponing Social Security until your late 60s. This is because the benefit amount increases if you make a claim later. The advice makes sense – higher retirement income is usually what you want.

There are exceptions. Getting higher Social Security benefits to claim later can be costly, financially or in terms of quality of life. Here are three scenarios when claiming a lower Social Security benefit at age 62 might be the smarter move.

1. You are in poor health

It’s not free to defer your Social Security. You do not necessarily pay a fee, but you to do foresee income. The trade-off — no income up front for higher income later — only makes sense if you survive the break-even point.

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Here’s a scenario to explain that break-even timeline. Let’s say you qualify for a monthly benefit of $1,500 at your full retirement age (FRA). If your FRA is 67, claiming it at age 62 can cut your benefit by up to 30%. That would reduce the $1,500 advantage to $1,050. In other words, you must declare five years of income upfront to increase your monthly income by $450.

At some point, the extra $450 monthly will pay you back for the five-year delay. In the table below you can read how to calculate the duration of that repayment term.

Action

Calculation

Where the

1. Calculate the lost income due to the deferral of benefits.

$1,050 x 60 months

$63,000

2. Calculate the monthly income increase associated with the deferral of benefits.

$1,500-$1,050

$450

3. Calculate the number of months it takes to break even from the lost income.

$63,000 / $450

140 months

Data source: Author calculations.

As you can see, you would have to accumulate your higher Social Security benefits for almost 12 years before you even break through the income you skipped beforehand. Your health and expected lifespan determine whether this makes sense or even possible.

If your health deteriorates, using and enjoying the income sooner can maximize your cumulative Social Security benefit even if the monthly amount is lower.

2. You have enough savings

If you have a lot of retirement savings, you may not have to take every cent of your Social Security benefits. In this context, “abundant” means more than 30 times your annual living cost. Pass that test and you can probably base your Social Security timing strategy on what you want versus what you need.

You may want to use the income now, for example to retire early or to fatten up your investment account. If you can afford to take the lower benefit sooner, why not go for it?

Note that claiming at age 62 is most beneficial if you are already retired. Social Security has maximum income limits that apply between 62 and FRA. If you exceed that limit, your benefit will be reduced.

3. You have passive income coming in

A reliable stream of passive income can also justify a prior claim to Social Security. As long as your passive income and Social Security work together can support the lifestyle you want, you probably won’t have to wait for a higher benefit later on.

Before proceeding with your early claim, think about what would happen if one of your sources of income were to decline or disappear. After all, pensions can go bankrupt and dividend stocks can change their attitude to shareholder payments. Have a nice savings balance plus a backup plan, just in case.

Early claim to social security

Claiming Social Security at age 62 provides an income that you can enjoy in your early 60s. The trade-off is that you sacrifice a higher advantage later in life. That deal can work for you under two conditions. First, the lower benefit of claiming early should be enough to support your lifestyle. And second, you want to prioritize quality of life sooner rather than later.

If you agree with these two points, an early Social Security claim may be your best move.

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