Typical advice on Social Security benefits suggests that you delay your Social Security Benefits until age 70 to maximize benefits and take advantage of delayed retirement credits.
For most people, this is sound advice – but can it make sense to go the other direction and claim at the early retirement age of 62? There are good reasons for either approach, depending on your situation and assumptions.
- Investments – If you have other retirement income that can pay the bills, you may decide that you would rather have the benefit money earlier and invest it yourself. Considering that Social Security is inflation-adjusted income, you need a solid inflation-adjusted return to come out ahead – Forbes estimated around an 8% annualized return – but it is possible.
The website Simple Stock Investing compiled a graph of real (inflation-adjusted) returns for the S&P 500 back to the 1950s. The 1950s, 1980s and 1990s beat an 8% return; the 1960s, 1970s and 2000s did not. The overall return since 1950 by their calculations was 7%.
Beating Social Security with investments can be done, but it requires both investing acumen and luck.
- Benefit Strategies for Couples – Several strategies for couples involve one spouse applying for benefits early to pay bills while the other spouse delays their benefits to accumulate delayed retirement credits.
"Claim and Switch" methods involve a lower-earning spouse claiming benefits at age 62 to provide income, while the higher-earning spouse files for spousal benefits at full retirement age (FRA). The higher-earning spouse then switches to his or her own benefits at age 70, which have been enriched by the delayed benefits.
"File and Suspend" methods are similar, where the higher-earning spouse files but suspends payments until age 70 as the lower-earning spouse immediately files for spousal benefits. The higher-earning spouse should be at FRA for this to work; if the lower earning spouse is at least 62 he or she can file right away or wait until his or her FRA to get full benefits. The only reason to file at age 62 is if your benefits are slated to pay the bills while your spouse's benefits grow.
- Part-Time Employment – If you intend to work part-time through retirement and you stay below the annual earnings threshold of $15,480, your income can compensate for the lower benefits – and once you pass age 70, you can work as much as you want with no impact on benefit amounts.
- Short Life Expectancy – With a known condition or very good reason to expect a limited post-retirement lifespan, you may prefer to take your benefits early. You can run different scenarios on life expectancy and benefits to find the breakeven point on outliving your money using calculators from online sources such as the AARP website.
- Short-Term Financial Need – If you simply cannot afford to delay your benefits because of day-to-day bills and expenses, you may be forced to claim your benefits early. It is wise to review all of your expenses and finances to verify discretionary expenses are limited, but if you are to the point of early withdrawals from retirement funds to use the money, it is better to claim early.
Social Security benefits strategies are complicated – you can ask the Social Security Administration by phone, email or in person -- or seek other professional advice if you need help fully understanding your options. It is wise to get multiple opinions and perspectives for decisions that are this important.
Whatever you decide, feel confident in your decision and look forward to a fulfilling retirement.
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