Social Security: Taking Benefits at 62 Is Smart, but Not for This Reason

There's absolutely nothing wrong with taking Social Security early. Unless, that is, the sole reason is to invest it in the stock market.

Aug 20, 2014 at 2:15PM


The vast majority of Americans take Social Security benefits early -- that is, before they reach full retirement at age 66. But even though this is often a good idea, some retirees claim benefits early for the wrong reasons.

I was reminded of this recently when reading about a married couple who are planning to apply for benefits at age 62. Billy and Akaisha Kaderli don't need the additional monthly income, but they want to take the cash and invest it in the stock market.

"The S&P 500 index has averaged returns of more than 8% per year, plus dividends, since we retired in 1991," they observed. "If we take Social Security early and invest it, we won't be losing the extra 8% in benefits we could get for every year we delayed receiving them."

However, taking Social Security before full retirement age in order to invest that money in the stock market is not generally the best idea. If you don't need your Social Security benefits at age 62, then you're likely better off simply delaying them, rather than collecting and reinvesting them.

Now, just to be clear, the Kaderlis are a highly experienced and financially astute pair. They were able to leave the workforce at the age of 38 and have since lived off of their investments for two and a half decades. It goes without saying that most people don't have this luxury. That is to say, most people need their Social Security benefits.

According to the Social Security Administration, approximately 34% of the U.S. workforce has no savings set aside for retirement. And among elderly beneficiaries, 22% of married couples and about 47% of unmarried persons rely on their Social Security benefits for 90% or more of their income.

With this in mind, it's important to recognize that there's no guarantee when it comes to stocks, and there is a real risk of capital losses. Sure, the S&P 500 has grown at a compound annual rate of roughly 9% since World War II. But, as you can see in the chart below, that growth has been uneven -- particularly over the last 15 years.


Moreover, the fact that stocks have historically returned 9% is no guarantee they'll stay on the same trajectory forever. In fact, if you look at the demographic trends in the United States -- with baby boomers shifting out of their high-consumption years -- it isn't unreasonable to think that the growth rate in corporate earnings could slow down.

This is impossible to predict, of course, and the market could do just the opposite of what we expect. But the point is that market forecasts cannot be relied upon.

Meanwhile, for every year you delay Social Security benefits -- from age 62 to age 70, when you reach your maximum potential benefit -- you are guaranteed to receive an additional 8% in benefits per year.


If you need to take Social Security benefits early, then, as I've argued in the past, there's no problem with that, even though your monthly checks will be smaller than they would be if you waited. But if you don't need them, then there's little reason not to delay benefits and allow your future payouts to grow over time. A guaranteed 8% annual "return" is hard to turn down.

For people who don't need to take benefits early, then the certainty of larger monthly checks associated with waiting until full retirement or later shouldn't be substituted for the uncertain returns of the market.

How to get even more income during retirement
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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.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

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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