Everyone loves instant gratification. Why wait for a good thing when you can have it now?
That seems to be how millions of Americans think of Social Security. After all, the most popular age to start claiming benefits is 62 -- the earliest possible age.
Many personal-finance experts say claiming Social Security that early is a big mistake for most retirees. Here's why: In order to get your full retirement benefits, you need to hold off on claiming Social Security until your full retirement age (which varies based on the year you were born). Though you're allowed to claim Social Security as early as age 62, doing so will permanently reduce your monthly payment.
And it cuts the other way, too. If you delay benefits beyond your full retirement age, you'll get an 8% boost in benefits per year up until you turn 70, at which point there's no additional incentive to hold out.
Even so, there are scenarios in which taking those benefits as soon as possible makes sense. Here are three to consider.
1. You're in poor health
By claiming Social Security early, you could see your benefits reduced up to 30%. But that's only a bad move financially if you're planning to collect benefits for many years. If your health isn't great, and your life expectancy is shorter than that of most people your age, then you might come out ahead by claiming early. Say you're eligible to receive $1,200 a month in Social Security benefits once you reach your full retirement age of 67. If you start claiming those benefits at 62, you'll cut that $1,200 to $840 a month. But what if you only live until age 70? In that case, collecting eight years' worth of benefits at $840 a month gives you $80,640 in total benefits. On the other hand, if you wait until age 67 to start claiming, receive your benefits in full, and pass away three years after the fact, you'll have collected just $30,240 in all.
2. You're trying to avoid debt
If you reach the age of 62 and find yourself in serious need of money, then claiming your Social Security benefits could be a much wiser move than charging up a storm on your credit cards or applying for a loan. Whereas a bank can deny your loan request, the Social Security Administration can't deny you the benefits to which you're entitled once you meet its age and work credit requirements. And although taking your benefits early might ultimately cost you more than carrying and paying off a balance on your credit card (paying 12% interest, for example, may be more cost-effective than reducing your benefits by 30%), if won't harm your credit score, whereas failing to repay a loan in a timely manner could destroy your credit at a point in your life where you don't have much time to build it back up. Besides, there are major psychological benefits to entering retirement debt-free.
3. You don't really need the money
You may be thinking, "Why on Earth would I claim Social Security early if I didn't need the money?"
Even if you don't need your Social Security benefits to pay your basic expenses, they could help you attain the rich, rewarding retirement lifestyle you've always dreamed of. Say you have enough money in your retirement accounts to pay all of your basic expenses, from housing to healthcare, but you don't have much left over for entertainment and travel. As long as you have enough money in savings to cover your needs for the remainder of your retirement, you might as well use those Social Security checks to indulge in the good life while you're young enough to enjoy it. After all, you're more likely to have the energy for a month-long overseas trip at 62 or 63 than at 75 or 80.
The notion that the best things come to those wait doesn't necessarily hold true with regard to Social Security. And while waiting has its advantages, claiming your benefits early may not be such a bad move after all.
