Social Security: Why Taking Benefits at 62 Is Smarter Than You Think

If you've been led to believe that waiting to apply for Social Security is always the best thing to do, then you need to read this.

May 31, 2014 at 11:15AM


This article was updated on August 13, 2015.

Most retirees believe it's best to wait as long as possible before applying for Social Security. But is this really the smart thing to do? Surprisingly, the answer is often "no."

It's understandable if you're under this impression, as the size of your monthly benefits does indeed depend on when you begin receiving checks. If you do so at the earliest possible moment -- that is, the month after turning 62 -- then your monthly take will be between 25% and 30% less than had you waited until full retirement at 66.

Furthermore, if you wait until turning 70 then you'll receive delayed retirement credits. This adds 8% a year to your monthly check for as many as 3 years. The net result is that you could end up receiving 32% more each month than your primary insurance amount (what you're entitled to at age 66) and 76% more than if you elected to receive benefits at 62.

But while these numbers are impressive, it's not the end of the analysis. This is because there's a large cost associated with waiting; if you start receiving benefits at 62 as opposed to 70, then you get monthly checks for eight more years. The question, in turn, is whether (and, more specifically, when) the cost of waiting outweighs the benefit of a higher but delayed monthly check.


This is known as a break-even analysis. And while there are calculators for this purpose online, here's the gist of it: If you expect to live past 77, then you should wait until full retirement age to begin collecting benefits, as it's at this point when the gain from waiting overtakes the cumulative cost -- see "A" in the preceding chart.

Moreover, if you realistically see yourself living past 82, then it would also behoove you to wait until you're 70 years old. The rationale is the same; by that point (see "B" in the chart), your cumulative benefits from waiting will add up to $206,000 compared to $204,000 had you elected to receive benefits at 66 and $189,000 had you begun drawing from the system at 62 -- this is assuming a primary insurance amount of $1,000.

But here's the thing that's important to keep in mind: According to the latest data, the average lifespan of an American is 79.8 years old. And for men, it's only 77.4 years compared to 82.2 years for women. Thus, based on age alone, and particularly for males, it's probably not as smart as you might at first think to hold out for larger Social Security checks.

It's also worth pointing out that, according to a recent government report,  "The Social Security benefit formula adjusts monthly payments so that someone living to average life expectancy should receive about the same amount of benefits over their lifetime regardless of which age they claim."

Now, just to be clear, there are a number of additional variables that should factor into one's decision about when to apply for benefits. If you're planning to work between the ages of 62 and 66, for instance, the scale tips in favor of deferment, as wages above a certain threshold will erode your Social Security benefits until you reach full retirement. And the same can be said if you have a spouse or other dependents that are likely to outlive you. The net result would be to extend the life (and thus value) of your cumulative benefits.

Nevertheless, the point here is that if you find yourself in a position to apply for benefits early, rest assured that there's little reason not to.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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