3 Times You Should Claim Social Security Benefits Early – And 3 Times You Shouldn’t

(Sam Swenson, CFA, CPA)

For some, the decision to take Social Security is a challenge: you have to consider several factors to arrive at a final decision. In certain cases, it may make sense to claim benefits early — prior to full retirement age (FRA) — to strike a better deal for you and your family. It is also smart to consider both financial and non-financial factors when it comes to submitting your application for benefits.

Let’s take a look at three times you should — and shouldn’t — consider taking Social Security benefits early.

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When should you take early benefits?

1. You need the money

In the simplest terms, take Social Security if you must take Social Security. Despite the potential to hold onto more if you delay your claim, there’s a pretty clear argument that if you need the money to pay for necessities, you shouldn’t hesitate to file your claim. However, keep in mind that you will receive a check equal to 30% less than your primary insurance amount would allow if you waited for FRA to file your claim.

2. You are in poor health

The break-even age for applying for benefits early is generally the late 1970s or early 1980s; in other words, unless you live beyond these ages, you will almost certainly receive less money by filing for Social Security early.

That said, if you have a shorter-than-normal life expectancy, it makes sense to claim benefits ASAP. Locking a guaranteed income at 62 can make sense in this context, especially if ill health is preventing you from earning an active income.

3. You really want to retire

Life isn’t all about maximizing financial returns. Undoubtedly, there are countless instances where work is simply no longer attractive – especially after 30 or 40 years.

If this applies to you, consider taking benefits sooner than you would otherwise. If you can make it work with the rest of your financial picture, retiring at 62 may be your best option, all things considered.

When to wait to apply for benefits

1. You enjoy your work

If you’re not totally shocked by going to work every day, continuing to work can make a lot of sense in your early to mid 60s. Research suggests that working in the early years of retirement can not only help secure your long-term financial future, but it can also provide social benefits that contribute to a greater sense of well-being.

To the extent that you can add (or continue) meaningful engagement with others, it makes sense. Practically speaking, if you’re still working, Social Security checks become less important in the short term.

2. You have significant savings

Assuming you’ve taken the necessary steps to grow your retirement accounts (such as 401(k)s and IRAs) during your working career, jumping to Social Security once you qualify is not an emergency. If you’ve decided to lower your active income in your early 60s, you can supplement with portfolio withdrawals until you go into higher benefit checks after you reach FRA. Significant investments, predictable, provide valuable security as you consider your retirement plan.

3. You want the highest monthly check

Keep in mind that by deferring your benefits claim until FRA or later (up to age 70), you are locking up a much larger monthly check than you would if you were claiming benefits at age 62. For 2022, assuming you earned the maximum taxable base in your 35 highest income years, you’ll receive $4,194 per month at age 70 as opposed to $2,364 per month at age 62 — a pretty significant difference.

A complex decision

The decision to claim Social Security should be made in the context of your overall financial picture, as well as your family situation, life expectancy and other non-financial factors. Regardless of your choice regarding the timing of your claim, make sure you’ve thought it through carefully and don’t be afraid to ask for help from a qualified professional if necessary.

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