Your retirement plans almost certainly include receiving money from the Social Security Administration, but when you begin receiving benefits might have a significant impact on your plans.
You can start collecting benefits as early as age 62, but you’ll get more money if you wait over your first Social Security eligibility.
If you wait until after you reach full retirement age (between 65 and 67), you can earn delayed retirement credits, which can boost your benefits even further.
Waiting for larger advantages may appear to be the preferable option, but this is not always the case. There is no definite answer to when you should start collecting Social Security benefits, but doing so as soon as you reach the early retirement age of 62 may be the smartest financial decision you can make.
1. You’re making arrangements for end-of-life care.
Your Social Security benefits stop paying at the time of your death, so if you die before collecting payments, you’ll be out of luck. Instead, you should figure out how to make the most of your Social Security benefits.
For example, let’s imagine you want to wait until you’re 70 to receive the bigger monthly benefit. You will not be eligible for payments if you die before reaching the age of 70. It’s tough to say how long you’ll live, especially if your health is good right now.
If you have a fatal or catastrophic disease, however, the greater monthly income from deferring Social Security may not be worth it.
2. Your Life Expectancy Is Shorter
The government rewards you for delaying your Social Security payments by increasing your monthly payment the longer you wait. If you begin collecting benefits at the age of 62 and reach full retirement age at the age of 66, your monthly payment will be approximately 75% of your full-age benefit.
So, if you were expecting a $1,000 monthly pension at 66, you would only get roughly $750 at 62.
Although a higher monthly benefit may sound appealing, keep in mind that you’ll have to wait four years to receive the additional $250. During those four years, you would earn $36,000 at a reduced rate of $750 per month.
When you start collecting $1,000 at the age of 66, the extra $250 per month won’t allow you to break even for another 12 years. If your health is deteriorating and you don’t expect to live until you’re 78, filing a claim as soon as feasible will result in you receiving more benefits over your lifetime.
3. You Must Pay Off Debt
Before you retire, you’ll need to pay off some debts. If you have high-interest debt, filing for Social Security benefits early can help you pay it off.
The 8% annual rise in your benefits for each year you wait over full retirement age may not be worth the extra monthly income, depending on the interest rate you’re paying.
If you use the early benefits to lower or erase your debt sooner, you may be able to keep more of your benefits later.
4. You’re unable to work any longer
Even the most meticulous financial estimates and plans for retirement can go wrong. You might, for example, have planned to work until you’re 70 years old in order to maximise your retirement benefits. If you’re laid off at 62 and can’t find another job, you might have to start using your benefits just to make ends meet.
Furthermore, continuing to work in your field later in life may be impossible or unhealthy for you. If your employment includes manual labour, you may decide that the danger of injury or other health consequences isn’t worth it.
In this situation, the healthier lifestyle you’ll enjoy as a result of early retirement may exceed the lower monthly Social Security income.
5. You Only Have a Part-Time Job
If you file for Social Security before reaching full retirement age but still working part-time, your benefits may be cut if your earnings exceed the yearly maximum. If you are under the age of full retirement in 2021, your benefits will be reduced by $1 for every $2 you earn above $18,960.
If you reach full retirement age in 2021, your benefits will be reduced by $1 for every $3 you earn before reaching full retirement age. Taking Social Security at 62 may make sense if you’re working part-time to supplement your income.
6. Your benefits are not relied upon by anyone else
In the event of your death, the Social Security Administration may pay money to a surviving spouse, minor, or disabled child based on the amount of your benefits.
A surviving spouse, for example, can receive anywhere from 71.5 percent to 100% of your benefit amount, depending on the surviving spouse’s age. Even after you’re gone, a crippled child might receive 75% of your monthly payments.
If no one else can qualify for benefits because of your record, you may wish to retire early because no one else is counting on that money.
Consider receiving your Social Security payments early if everything else falls into place and you reach the minimum retirement age.
7. You’ve already completed 35 of your highest-earning years.
Your Social Security payments are calculated using your earnings during the 35 years in which you earned the most money. If you’re in your prime earning years, you may be able to increase your benefits by working for a few more years and deferring benefits.
If you’re not going to improve your average earnings, such as if you’re only working part-time or have had to retire early, you won’t miss out on the opportunity to increase your benefits with higher earning years. However, because you didn’t wait until full retirement age, you’ll get a lower payout.
8. You anticipate your investments to grow at a faster rate than your increased benefit.
If you’re the next Warren Buffet, it’s feasible that accepting Social Security early and investing the money will be a better investment than waiting to take a greater payout later.
Consider the rate of inflation, the rate at which your benefits increase, and how much you may expect to make in your portfolio when making your selection.
However, it’s difficult to outperform the market when benefits increase by 8% each year for each year you wait beyond reaching full retirement age. These risk-free investments pay you handsomely.
9. You want to start your own company
Some individuals consider retirement to be a time to relax, but you may see it as an opportunity to do something you couldn’t do before, such as establish your own business.
For example, you may have put off establishing a business in the past because you were concerned about not making enough money.
Social Security funds may be sufficient to fund the start-up of your firm. And, if your firm is successful, the revenue it creates may be sufficient to compensate for future benefit reductions.
10. You’re worried that Social Security will be phased out.
Some people are anxious about future changes to Social Security, such as increased retirement ages, fewer payouts, or greater benefits taxes.
As a result, they are eager to get their hands on the safe option as quickly as possible. The government predicted that Social Security trust funds would be drained in 2034 in a 2017 Social Security overview.
Even then, annual Social Security levies are expected to preserve payments at nearly three-quarters of what they are now.