Taking Social Security Early: Why (and When) It May Make Sense

It seems like a no-brainer to delay taking Social Security, but it might work better to claim your benefits early. Here are five reasons it may make sense.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Breaking into the piggy bank: Taking Social Security early
4 min read
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Key Takeaways

  • Sometimes it makes sense to take Social Security early
  • Think about your marital status, health, and nest egg when considering early retirement
  • Working while collecting Social Security can impact your benefits

One of the biggest issues many retirees and would-be retirees face is when to take Social Security. For healthy individuals, it seems like waiting until at least age 70 makes the most sense. After all, the longer you delay Social Security beyond your full retirement age (currently 66 or 67 depending on your birth date), the higher your income payments may be. At the very least, it seems logical to wait until you reach your full retirement age (FRA) to avoid a reduction in benefits.

But not everyone feels the need to wait on taking Social Security. In 2018, 31% of women and 27% of men signed up for Social Security at age 62, according to data from the Social Security Administration. Let’s look at some benefits of waiting—and when it might make sense to consider claiming those benefits early.

The Benefits of Waiting to Claim Social Security

Given the gains in longevity, healthy folks have a real probability of living into their 90s—and some may see 100 years or more. Social Security, although not guaranteed, can provide a stream of income to help hedge against outliving your assets. It can also help you manage inflation risk because the benefits are generally adjusted each year for the cost of living. And because many financial products don’t offer a cost-of-living adjustment, Social Security continues to be an important retirement product even for high-net-worth individuals.

When you claim Social Security benefits before your full retirement age, you can receive 25% to 30% less than what you’re entitled to. If you’re willing to wait longer, until you’re 70 or older, you could potentially see a higher monthly benefit. Let’s look at five instances in which it may make sense to claim your Social Security benefits sooner rather than later.

Reason #1: Early Retirement

Perhaps you’ve built a sizable nest egg and are ready to start the next chapter of your life. You could start collecting Social Security at age 62 as a way to help cover the “go-go” early years of retirement and attempt to preserve the potential tax benefits of the money in your IRA or employer-sponsored retirement plan.

The less you have to tap your savings now, the more income you may have later on. Creating a formal retirement income plan that identifies and addresses the potential risks of early retirement may help you evaluate your decision. For example, you might have other assets that could help protect you from outliving your money, such as longevity insurance or a pension plan with cost-of-living adjustments. If so, taking Social Security early might work for you. Be sure to also take into account the potential tax implications of any asset withdrawals and the net amount of your Social Security checks.

Reason #2: Investing in Your Future

If you have sufficient savings to address your retirement income needs, you might choose to collect your benefits early and invest the money to help save for your children’s or grandchildren’s education and other goals. Or you could invest the checks to help build a legacy for your heirs.

You may be able to generate a better rate of return by investing the funds yourself. You could also use your benefits to help pay off any debts faster and save money on interest.

This can be a risky proposition, however. Remember, if you take your benefits before your FRA, you’re expecting to earn more than 8% plus the Social Security cost-of-living adjustment for the next several years. In addition, you’re receiving these reduced Social Security benefits for life. So if you and/or your spouse live into your late 80s or 90s, you may not have enough money to cover the medical costs common in older age.

Even Medicare Part B premiums are deducted from your Social Security, thus your actual spendable cash later in life may be lower than you planned. For example, let’s say your monthly Social Security benefit is $1,130 per month. Once you reach age 65 and Medicare Part B is deducted, you might end up paying $148.50 per month, reducing your total benefit. It might not seem like much, but for retirees living off a fixed income, it can make a difference.

Plus, if you’re still working, your Social Security may be taxable to you as well.

Reason #3: Two Social Security Checks

If you’re married and earn more than your spouse (or vice versa), it might make sense for the person with lower wages to take Social Security early while the other person waits until age 70. This strategy could provide extra money for your retirement wants and wishes while helping maximize future benefits for the surviving spouse.

Reason #4: Financial Necessity

Planning on working past age 65? You may need to use Social Security as part of your contingency plan. Personal and family health issues, along with job layoffs, often force individuals to stop working sooner than expected. According to the Employee Benefit Research Institute (EBRI), only three in 10 workers have actually worked in retirement, even though more than seven in 10 expect to do so.

If you find yourself in this situation, taking Social Security early might provide some much-needed income to help cover monthly expenses and other costs like medical bills. Even those who plan to delay Social Security should do some contingency planning to review the options just in case an unexpected life event occurs. For example, you might be able to hold off on taking Social Security for a few more months if your spouse has some other insurance available now to pay current expenses.

Reason #5: Health Concerns and Life Expectancy

To help choose their start date, many people look to their “breakeven” age, which is when the amount of money you’ve collected will be the same whether you begin at age 62 or wait until your Social Security full retirement age. Most analysis puts this age at the mid-70s to very early 80s, depending on when you actually start taking Social Security.

If you don’t expect to live to your breakeven age because of your current health or family history, you might consider taking Social Security early to help make the most of your benefits. For example, someone who dies at age 72 would have collected benefits for only two years if they waited until age 70, versus possibly 10 years if they’d started sooner.

But the longer you live (and thus the longer you receive benefits), the more you’ll draw in benefits.

Need an example? Refer to the table below. Note that a retiree who dies at age 72 would’ve been much better off drawing early, but by age 82, the math flips such that it’s better to wait. Past that point, the longer you live, the wider that disparity becomes.

The upshot? If you expect to live a long time in retirement, you might be better off waiting to collect that first Social Security check. Note: The numbers below are examples. Please check with the Social Security Administration to see your exact benefit depending on when you choose to start collecting.

Age Began Taking Social SecurityMonthly BenefitYearly BenefitCumulative Payments at Death (Age 72)Cumulative Payments at Death (Age 82)
66 (FRA)$1,000$12,000$72,000$192,000
This example is for illustrative purposes only.

Keep in mind that your breakeven age shouldn’t be the only factor you consider. And it’s based on a lot of assumptions. You should consider working with a tax or financial professional to help you run the numbers.

Bottom Line on When to Start Social Security Benefits

It might be shortsighted to view Social Security solely as a present value calculation of the money received versus what you might’ve earned had you invested yourself. Your Social Security payments could help supplement your other sources of retirement income, which may help your savings last longer. If you do take Social Security early, consider replacing this income with another source like longevity insurance. No one wants to be 93 years old and have to try to find a job after decades of retirement. That’s neither a pleasant thought, nor is it likely feasible. 

It’s also worth noting if you plan to work and collect Social Security, your payments may be taxed or reduced further. Plus, you may have to pay taxes on 85% of your benefits, depending on your income. On top of that, even though you’re collecting Social Security, you won’t generally be eligible for Medicare until age 65. So make sure you have a way to pay any medical expenses until then. 

You’ve paid into Social Security throughout your career, and now it’s time to enjoy the benefits. As you think about your start date, remember the right age—62, 66, 70, or somewhere in between—is the one that potentially helps you live the way you want in retirement.

TD Ameritrade does not provide tax advice. You should consult with a tax professional regarding your specific circumstances.


Key Takeaways

  • Sometimes it makes sense to take Social Security early
  • Think about your marital status, health, and nest egg when considering early retirement
  • Working while collecting Social Security can impact your benefits

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