It may be tempting to take your Social Security at age 62. Your life expectancy, income needs, and spousal benefit are three keys factors that play a role in the decision to claim your benefits. Guaranteed monthly income is great to have but claiming your benefits too early may cost you in the long run.
If you claim your benefits at age 62 you can expect a 30% reduction in monthly benefits. The closer you get to your full retirement age the less these reductions will be. If you were born in 1960 or later your full retirement age is 67. For every year you delay past your full retirement age up to age 70, you get an 8% increase in your benefit. To find your full retirement age check here.
The chart below assumes full retirement age is 66 (The full retirement age for people born between 1943-1954). For example, if you claim your benefits at age 66 instead of taking at 62, you will have to live till age 77.9 for your benefit breaks even. If you claim Social Security at age 66 and live past age 77.9 you will collect more money overall than you would have if you claimed your benefit at age 62.
Chart from Fidelity Investments
Another example is Diane who is 59 and was born after 1960 so her full retirement age is 67. She has made a good living and paid the maximum in Social Security payroll tax for most of her career.
If Diane were to take her Social Security at age 62 instead of taking at 67 it would cost her almost $175,000! The point is if you take Social Security too early the reductions add up over time. In this example, if Diane waited till her full retirement age (67) to claim Social Security her break even age would be 76. That means if she lives to age 76 or longer, she will collect more money from Social Security than she would if she took it at 62. The average life expectancy for women was 85.6 years old in 2018. The probability of living to a specific age or beyond is shown below.
Chart from by J.P. Morgan Asset Management’s “Guide to Retirement”
Most of the time taking Social Security at age 62 is the wrong choice but sometimes it does make sense to do so. Some of the most common reasons to take Social Security early are:
- No longer working and have no other source of income from retirement accounts, savings, ect.
- You have underlying health conditions or reason to believe you will not live a normal life expectancy
- You are the lower-earning spouse and your spouse can wait to file for a higher benefit.
- Your only available cash if from pre-tax retirement account (IRAs, 401(k)s, ect)
Deciding when to take Social Security is a difficult decision and it depends on your specific scenario. Contact me at george@pmgwealth.com or call us at 847-550-6100 to set an appointment and we can discuss when it would be best for your situation.
Sources
Create/log in to Social Security Account: Click Here
Compute the effect or early or delayed retirement: Click Here
Full Retirement Age: Click Here
Fidelity Break Even Chart: Click Here
J.P. Morgan Asset Management Chart: Click Here
COL Adjustment: Click Here
Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
