Your retirement plans almost certainly include receiving money from the Social Security Administration, but when you begin receiving benefits might have a significant influence on your plans.
You can start collecting benefits at age 62, but you’ll earn more money if you wait over your first Social Security eligibility.
If you wait until after you reach full retirement age (about 65-67), you can earn delayed retirement credits, which can boost your benefits even more.
Waiting for larger advantages may seem preferable, but this is not always the case. There is no definite answer to when you should start collecting Social Security benefits but doing so as soon as you reach the early retirement age of 62 may be the smartest financial decision you can make.
1. You’re making arrangements for end-of-life care
Your Social Security benefits cease paying when you die, so if you die before you can receive payments, you’ll be out of luck. Instead, you should find out how to maximize your Social Security income.
For example, let’s imagine you want to wait until you’re 70 to receive the bigger monthly benefit. You will not receive any benefits if you die before your 70th birthday.
It’s tough to say how long you’ll live, especially if your health is strong right now. If you have a fatal or catastrophic disease, however, the greater monthly income from deferring Social Security may not be worth it.
2. Your Life Expectancy Is Shorter
The government rewards you for delaying your Social Security payments by increasing your monthly payment the longer you wait.
If you begin collecting benefits at the age of 62 and reach full retirement age at the age of 66, your monthly payment will be approximately 75% of your full-age benefit.
So, if you were expecting a $1,000 monthly pension at 66, you would only get roughly $750 at 62.
Although a higher monthly benefit may sound appealing, bear in mind that you’ll have to wait four years to receive the additional $250. During those four years, you would earn $36,000 at a reduced rate of $750 per month.
When you start collecting $1,000 at the age of 66, the extra $250 per month won’t allow you to break even for another 12 years.
If your health is deteriorating and you don’t expect to survive until 78, filing a claim as soon as feasible can result in you receiving more benefits during your lifetime.
3. You Must Pay Off Debt
There are some debts you must pay off before retiring. If you have high-interest debt, filing for Social Security benefits early might help you pay it off.
The 8% annual raise in your benefits for each year you wait over full retirement age may not be worth the extra monthly income, depending on the interest rate you’re paying.
If you use the early benefits to lower or erase your debt sooner, you may be able to keep more of your benefits later.
4. You Are No Longer Employable
Even the most meticulous financial estimates and preparations for retirement may go wrong. For example, you may have intended to work until you’re 70 years old in order to maximize your retirement benefits.
If you’re laid off at 62 and can’t find another work, you may need to start collecting benefits just to make ends meet.
Furthermore, working in your field later in life may be impossible or unhealthy for you. If your employment includes physical labor, you may decide that the danger of injury or other health consequences isn’t worth it.
The healthier lifestyle you’ll enjoy by retiring early may balance the lower monthly Social Security payout in this scenario.
5. You are only employed part-time
If you file for Social Security before reaching full retirement age but still working part-time, your benefits may be cut if your earnings exceed the yearly maximum.
If you are under the age of full retirement in 2022, your benefits will be reduced by $1 for every $2 you earn above $19,560. If you reach full retirement age in 2022, your benefits will be reduced by $1 for every $3 you earn before reaching full retirement age.
Taking Social Security at 62 may make sense if you’re working part-time to supplement your income.
6. No one else depends on your benefits
A surviving spouse, minor, or disabled child might receive money from the Social Security Administration based on the number of your benefits in the case of your death.
A surviving spouse, for example, can get anywhere from 71.5 percent to 100% of your benefit amount, depending on the surviving spouse’s age. Even after you’re gone, a crippled kid might get 75% of your monthly payments.
If no one else can qualify for benefits because of your record, you may wish to retire early because no one else is counting on that money.
Consider receiving your Social Security payments early if everything else falls into place and you reach the minimum retirement age.
7. You’ve already completed 35 of your highest-earning years
Your Social Security payments are calculated using your earnings during the 35 years in which you earned the greatest money. If you’re in your prime earning years, you might be able to increase your benefits by working a few more years and deferring benefits.
If you’re not going to improve your average earnings, such as if you’re only working part-time or have had to retire early, you won’t miss out on the opportunity to enhance your benefits with higher earning years.
You will, however, receive a lower reward if you do not wait until full retirement age.
8. You anticipate that your investments will grow faster than your increased benefit
If you’re the next Warren Buffet, it’s feasible that accepting Social Security early and investing the money will be a better investment than waiting to receive a greater payout later.
- Claim Social Security at the age of 67? That’s Something You Might Want to Reevaluate!
- Claim Social Security Benefits Too Early? Increase Your Earning Potential Even if You Don’t Have a Job!
- Social Security: How to Claim Benefits for Your Family
Consider the rate of inflation, the pace at which your benefits rise, and the amount you may anticipate making in your portfolio when making your selection.
However, it’s difficult to outperform the market given that benefits rise by 8% each year for each year you wait after reaching full retirement age. These risk-free investments pay you handsomely.
9. You want to start your own company
Some individuals consider retirement to be a time to rest, but you may see it as an opportunity to accomplish something you couldn’t do before, such as establishing your own business.
For example, you may have put off establishing a business in the past because you were concerned about not making enough money.
Social Security funds may be sufficient to fund the start-up of your firm. And, if your firm is successful, the revenue it creates may be sufficient to compensate for future benefit reductions.
10. You’re concerned about the future of Social Security
Some individuals are anxious about future changes to Social Security, such as increased retirement ages, fewer payouts, or greater benefits taxes. As a result, individuals feel compelled to select the safe option as quickly as feasible.
The government stated in a 2021 Social Security summary that Social Security trust funds will be spent in 2034. Even then, yearly Social Security levies are expected to preserve payments at about three-quarters of what they are now.