Managing your money well often involves good timing. You want to pay your bills on time and you want to buy stocks when they're undervalued and perhaps sell when they're overvalued. Timing even plays a part in Social Security, because you want to start collecting your benefits at a time that makes the most sense for you.
The Social Security Administration assigns each of us a "full" retirement age at which we can collect our full benefits. But you can choose to start collecting that income as early as age 62 or as late as age 70. For maximum financial security, there are some solid reasons to start at 62.
Image source: Getty Images.
First, though -- do you know what your full retirement age is? For those born in 1937 or earlier, it's 65, for those born in 1960 or later, it's 67, and for those born between 1937 and 1960, it's somewhere in between. Despite that, most people start collecting Social Security at age 62. Here's why you might want to join them.
Reason No. 1: You might need to retire early
You might love your job and plan to work until your 70s, but many of us don't end up choosing when to retire. The 2016 Retirement Confidence Survey found that 46% of retirees left the workforce earlier than planned, with 55% citing health problems or a disability as the reason and 24% citing changes at work such as a downsizing or workplace closure. Thus, it can be quite handy that we can start collecting Social Security as early as 62.
Even if you don't have to retire early, you may just want to -- and you may be able to afford to, as well. After all, we generally don't know when we will die, so retiring sooner rather than later can give us more years of retirement to enjoy. Also, the younger you are when you retire, the more active you can be in retirement. If you want to do a lot of golfing or plant a big garden or wander through Europe's grand old cities, it will be easier to do when you're 65 than when you're 75. Early retirees often can enjoy their money more, being younger, healthier, and more able to travel, enjoy recreation, and so on.
You might not have quite enough socked away to retire right now, but there's a good chance that if you get more aggressive about saving and you invest your money effectively, you can make your retirement happen sooner. Take some time to devise a plan, estimating how much income you'll need in retirement and how you'll get it. Here's how much you might amass, depending on how far from retirement you are:
|
Growing at 8% For: |
$10,000 Invested Annually |
$15,000 Invested Annually |
$20,000 Invested Annually |
|---|---|---|---|
|
5 years |
$63,359 |
$95,039 |
$126,719 |
|
10 years |
$156,455 |
$234,682 |
$312,910 |
|
15 years |
$293,243 |
$439,864 |
$586,486 |
|
20 years |
$424,229 |
$741,344 |
$988,458 |
|
25 years |
$789,544 |
$1.2 million |
$1.6 million |
|
30 years |
$1.2 million |
$1.8 million |
$2.4 |
Data source: calculations by author.
Some or much of your nest egg might be used to buy fixed annuity income and/or park it in dividend-paying stocks. A $300,000 portfolio with an average dividend yield of 4% will generate $12,000 per year -- $1,000 per month. There are ways to boost your income in retirement, too.
Image source: Getty Images.
Reason No. 2: Delaying may not be worth it
If you are relatively savvy about Social Security, you might be thinking that starting to collect benefits early isn't smart, because the longer you delay collecting them, the bigger they will be. It's true that for every year beyond your full retirement age that you delay, up to age 70, your benefits will increase in value by about 8%. Delay from 67 to 70, and you can make your checks 24% bigger. If you would have started collecting $2,000 per month ($24,000 per year) at 67, you can instead start with $2,480 per month (or nearly $30,000 annually).
That can make delaying seem like a no-brainer move, but hold on. The Social Security Administration has explained, "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." After all, if you delay starting to collect from age 67 to age 70, you will miss out on three years' worth of payments (albeit smaller ones) -- that's 36 payments.
Delaying starting to collect can make sense in some cases, of course. Perhaps you're perfectly happy working and want to work until your late 60s or age 70 or beyond. Perhaps your family members tend to live very long lives, in which case collecting bigger checks for a longer-than-average time can be worth it. If there's a good chance that you'll live an average-length life, though -- or a shorter-than-average one -- starting to collect early can be your best move.
Image source: Getty Images.
Reason No. 3: You're coordinating with your spouse
Finally, another good reason to start collecting Social Security benefits at 62 is if it's part of an overall spousal strategy.
There are a bunch of Social Security strategies couples can use. Here's one example: If you and your spouse have very different earnings records, you might start collecting the benefits of the spouse with the lower lifetime earnings record early, while delaying starting to collect the benefits of the higher-earning spouse. That way, you both get to enjoy some income earlier, and when the higher earner hits 70, you can collect that person's extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.
There are a lot of upsides to retiring early and starting to collect Social Security benefits at 62. It might not be feasible for you, but you may still be able to retire earlier than planned if you assess your situation and devise a saving and investing plan.
