There’s no perfect formula for deciding when to take Social Security. There are, however, plenty of good Social Security timing scenarios to choose from. But first, it’s important to know your Social Security plan’s parameters and payout rates.
You can start collecting Social Security benefits as early as age 62. However, your benefit will be reduced if you begin collecting payments before your full retirement age, generally age 66 or 67.
If you take Social Security distributions at age 62, you’ll get 25% smaller payouts if your full retirement age is 66 and 30% smaller payouts if your full retirement age is 67. Waiting to claim Social Security often pays off in the long run, but there are several reasons you might choose to start Social Security payments at the earliest possible age, such as:
— You have health issues.
— You’re done working for good.
— You need cash to cover your expenses.
— You’re facing a financial emergency.
— You need to get out of debt.
— You’re retiring early.
— You want to maximize spousal benefits.
You Have Health Issues
Choosing when to take Social Security benefits is an important decision, especially if you have a health condition that may shorten your lifespan.
“In that scenario, it might make sense to take benefits at age 62,” says Chuck Czajka, certified financial fiduciary and founder of Macro Money Concepts in Stuart, Florida. “Remember, benefits are paid for life and cease upon death.”
However, if you are married and receive significantly larger Social Security payments than your spouse, consider delaying Social Security to leave them a larger survivor’s payment.
Another reason to claim at 62 involves a situation in which your spouse can claim Social Security and the survivor benefit is greater than what you would receive today. You can talk to a financial advisor about your unique situation.
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You’re Done Working for Good
Another reason to take benefits early is if you decide you are not going to work any longer.
If you keep working and earn more than $22,320, for every $2 you earn over this amount, Social Security will withhold $1. If you decide not to work and have enough to cover your retirement expenses, you may decide to receive the benefit early.
You Need Cash to Cover Your Expenses
Before collecting benefits early, Social Security recipients should consider three key issues: everyday living expenses, current savings and long-term health.
“If your current everyday living expenses surpass your Social Security benefit amount, you may not have the luxury of waiting for a larger payout,” says Lindsey Crossmier, a financial writer with RetireGuide. “You may need that money now to live comfortably.”
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You’re Facing a Financial Emergency
If you have experienced a financial emergency such as a layoff and are at least age 62, it can make sense to take Social Security early. You could also use the funds to launch your next phase of life.
If you recoup some of that money, you can repay your Social Security benefit within the first year without penalty, allowing your future Social Security benefit to accumulate.
You Need to Get Out of Debt
If you have debt that needs to be repaid and you cannot increase your earnings or take money from savings, consider taking Social Security payments sooner. That could help mitigate interest charges that might be piling up. Consolidating loans can also help simplify the repayment process.
You’re Retiring Early
If you want to retire early and need supplemental income, taking early Social Security payouts can help you ease into this new stage of life. You can use the income to help support any new hobbies or activities you want to try.
You Want to Maximize Spousal Benefits
If you’re married, when to collect Social Security becomes a joint decision.
“If your spouse took extended time off work for child care or any other reason, their Social Security payouts will already be less than yours no matter what since they have contributed less over time. So you should wait to collect and receive larger payouts,” says Mark Henry, founder and CEO at Alloy Wealth Management in Greenville, South Carolina. “If your spouse outlives you, you can direct your Social Security payments to them after your death. This is also a good idea if your spouse is younger than you.”
The Downside of Collecting Social Security at Age 62
Most people take Social Security at age 62 even though they are giving up 30% of their future income.
“If you’re still working at age 62 or you have other sources of income, it might make sense to wait until full retirement age or age 70 to take Social Security,” says Amy Colton, co-founder of Austin, Texas-based Forefront Wealth Partners. “If there are investment accounts, annuities, pensions or a reverse mortgage that they can tap into, it might make sense to wait.”
If you opt to take Social Security benefits at 62, you’ll receive the lowest possible monthly payouts the federal government pays out.
“The downside of doing so is longevity,” Henry says. “If you live to be older than the break-even age for having waited, you will have lost out on the higher payout you would have received by waiting. However, you simply cannot predict how long you will live, so we advise taking Social Security as soon as you stop working.”
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Reasons to Take Social Security Early at Age 62 originally appeared on usnews.com
Update 09/25/24: This story was published at an earlier date and has been updated with new information.
