The Financial Pros and Cons of Withdrawing Your Social Security Early – Community News
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The Financial Pros and Cons of Withdrawing Your Social Security Early

Kanawa_Studio/Getty Images/iStockphoto

Kanawa_Studio/Getty Images/iStockphoto

One of the most confusing things about Social Security is when to start taking benefits. According to the Social Security Administration, you can begin your payments as soon as you are 62 years old, but “full retirement age” is considered age 67 for most individuals, and you can defer payments until age 70. So, starting your Social Security before age 67 (for those born after 1943) is considered “early” withdrawal. But what exactly are the pros and cons of such early recordings? Here’s a quick rundown of the most important things to consider when making your decision.

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Pro: You will get your money as soon as possible

The most obvious benefit of withdrawing your Social Security early is that you get your money the fastest. If you start withdrawing money at age 62, you are withdrawing money for eight years before those who defer payments until age 70. While Social Security will always be there, there is talk of the trust fund closing by 2033. or so exhausted . Taking payments as early as possible can be one way to ensure you get as much money out of the program as possible before changes are made.

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Downside: Your checks will be smaller

The big downside to taking Social Security early is that you’re stuck with a lower monthly payout for the rest of your life. For those born in 1943 or later, Social security benefits increase by 8% per year. If you choose to withdraw your Social Security early, you will lose these built-in gains, which are risk-free but are in fact close to the stock market’s long-term average return. A monthly payout at age 62 is only 72.5% of your benefit even at full retirement age of 67, meaning the $2,000 you pull at 62 would be about $2,758 if you waited just five years.

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Pro: You have a government-paid income while you may still be in good health

The younger you can start taking retirement income, the more likely you are to be in good health. If you start taking Social Security at age 62, you can use that money toward your dream retirement, whether that’s traveling or taking up a new sport like cross-country skiing. If you wait until age 70, you are more likely to be delayed by age and/or health problems and not be able to take advantage of your retirement benefits as quickly. stop making

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Disadvantage: You may reduce the quality of your retirement lifestyle

If you are a fit person with no discernible health problems, you will permanently cripple your retirement lifestyle by taking your Social Security early. If you start living a long life and can instead wait to pull your Social Security, you will have a much higher quality of life. The difference between a payout at 62 and one at 70 can be significant, meaning you may be limited to local travel or even stay at home instead of enjoying cruises and/or international travel, for example. If you plan on being active during your late 60s and 70s, you may be doing yourself a disservice by ending your Social Security early.

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Pro: You’ll get ahead if you don’t meet your break-even date

As we have seen, Social Security benefits are reduced at age 62, and increase until age 67 until age 70. The total amount you would receive from your Social Security benefits will break even at approximately age 77. to be. This means that regardless of when you start receiving payouts, when you turn 77 you will receive approximately the same total amount. If you don’t expect to live past your breakeven date, be it because of lifestyle choices, personal health, or family history, you’ll get a head start if you start paying early. Although the amount is reduced, you will receive these payments for much longer. Look at it this way: If you start making a $1,500 payout at age 62, you’ll have received $144,000 (notwithstanding the effect of any inflation adjustments) by the time you reach age 70.

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Against: If you live a long life, you leave money on the table

Age 77 may still seem a long way off, but if you are already approaching retirement age, your life expectancy is likely to be longer, especially if you lead a healthy lifestyle. If you pull your Social Security early and live a long life, you could be leaving a significant amount on the table. Imagine a scenario where you turn 100, for example. This would mean that at age 70 you still have 30 years to live. If you permanently reduce your monthly Social Security benefit, waiting 62 to 70 years, or even 67 years, may seem like a small price to pay for a higher income for life.

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This article originally appeared on The Financial Pros and Cons of Withdrawing Your Social Security Early