Three Reasons for Taking Social Security Benefits Early Rather Than Waiting Until Age 70
Early or Late: Making the Right Call on Social Security Benefits
Deciding when to claim Social Security benefits can be a complex decision, with various factors to consider. One author, for instance, has expressed a preference for receiving benefits earlier rather than later, despite the potential reduction in monthly payments.
Key Factors in the Decision
The author's decision is influenced by several key considerations. Firstly, the break-even age, which is the point at which the total lifetime benefits received from claiming at one age equal those from claiming at another age, is a crucial factor. In the case of a $2,000 monthly benefit, the break-even age for claiming at 62 versus 70 is just after age 80.
Secondly, the author's preference for a longer time span of benefits is driven by the relatively late break-even age. By claiming early, they can receive benefits for a more extended period, even if the monthly payments are smaller.
The Impact of Early Claiming
Claiming Social Security benefits early results in a permanently reduced monthly benefit—up to about 30% less—compared to claiming at full retirement age (FRA), when you receive 100% of your earned benefit. However, the trade-off involves several factors. Early claiming provides immediate cash flow, which can be invested or used to cover expenses. If invested wisely, early benefits can potentially generate returns exceeding the benefit reduction.
Future Uncertainty and Personal Circumstances
Social Security faces long-term funding challenges, which might lead to benefit cuts or changes such as raising the FRA. Historically, benefits haven't been cut, but reductions might become necessary after 2034 unless legislative fixes occur. This future uncertainty may influence some to claim earlier to lock in benefits.
The author's health and financial situation also play a role in the decision. Those with shorter life expectancy or immediate income needs might benefit from claiming early, while healthier individuals with sufficient savings might prefer to delay to maximize monthly income.
The Bottom Line
In summary, early claiming reduces monthly benefits but may be preferable if you need income immediately, expect a shorter lifespan, or can invest the money effectively. Waiting until full retirement age or later increases guaranteed monthly benefits and is generally favorable if longevity and benefit maximization are priorities, considering uncertainties in Social Security's future. Strategic personal factors like health, tax situation, and investment opportunities should guide the decision.
It is essential to remember that the Old-Age and Survivors Insurance (OASI) Trust Fund could be depleted by 2033, resulting in Social Security being able to pay only 77% of its expected benefits. Bipartisan government action could resolve the shortfall, but it is not guaranteed based on past inaction and the current political landscape.
Before making a decision, it is advisable to seek professional advice from a financial advisor to ensure a well-informed choice.
Personal finance plays a significant role in determining when to claim Social Security benefits, as the choice affects the amount of money received monthly. With the understanding that early claiming results in reduced monthly payments, the author endorses claiming benefits early to maximize the span of personal-finance benefits, especially considering the relatively late break-even age or uncertainties in Social Security's future. However, it's crucial to consult with a financial advisor to make an informed decision, taking into account factors such as one's health, financial status, investment opportunities, and the potential impact of future Social Security finance changes and possible reductions.
