When to begin taking Social Security is one of the most difficult decisions facing seniors. Taking Social Security early means receiving up to 30% less than taking it at your full retirement age, which for people born after 1938 is between 65-67, while taking it later can mean receiving a payment that is up to 32.5% bigger than the payment received at full retirement age.
Although taking it later can mean a much bigger monthly payment, I plan on taking it at age 62. Here's why.
First, a bit of background
Social Security provides monthly income payments to people who have paid into the Social Security system during their working years. In order to qualify for Social Security payments, an individual needs to accumulate 40 Social Security credits.
In 2015, one credit is awarded for each $1,220 of wages or self-employment income earned. Therefore, if you earn $4,880, you would earn four credits, which is the maximum of credits that can be earned in one year.
This means that most people will have earned enough Social Security credits to qualify for Social Security payments after they have paid into the system for at least 10 years.
Once a person has accumulated enough credits to make them eligible for Social Security, they can opt into receiving their Social Security payments as early as age 62.
If a person decides to receive Social Security at age 62, they'll qualify for a much lower percentage of their full monthly Social Security benefit, which, as I mentioned earlier, is reached at between age 65-67, depending on a person's birth date.
Why I'm planning to take it sooner, rather than later
According to the Social Security Administration, my full retirement age is 67 and my estimated monthly benefit at age 67 is $2,178 per month.
If I take Social Security at 62, the Social Security Administration estimates that my payment would be $1,526 per month. Conversely, if I were to take it at age 70, my monthly payment would increase significantly to $2,701 per month.
On the surface, it would seem to make a whole heckuva lot more sense for me to wait until age 70 to take my benefits. After all, taking benefits at age 70 would mean receiving $2,701 per month, or 76.9% more than taking it at age 62.
So, why on earth would I want to take it early and leave all that extra money on the table?
Although every individual's situation is different and deciding when to take Social Security is a personal choice, I'm planning to take it early because I don't expect that I'll need to rely on Social Security payments for income in retirement and that means that I can invest my Social Security payments, rather than spend them.
That's not the case for everyone. In fact, Social Security accounts for 50%, or more, of retirement income for 52% of married recipients.
Fortunately, I believe I'll have enough money available to cover my expenses without needing to rely on Social Security, and, as a result, investing my Social Security payments could allow me to increase the size of my estate.
For example, if I were to invest the $1,526 per month that I would receive at age 62 in an investment that returns an average of 6.5% annually, it would grow to an estimated $104,263 between age 62 and age 67.
If I do this strategy for 10 years, the nest egg would grow to $247,111 when I reach age 72. If I live until 82, sticking with this strategy would add $710,972 to my estate.
For comparison, if I wait until 67 and then invest those higher monthly payments in something that earns a hypothetical 6.5% annually -- then it would grow to just $632,027 at age 82, which is about $79,000 less than I'd have if I started at age 62. If I wait until I'm 70 to start this strategy, then my nest egg would be worth just $563,021 at age 82, or 20.8% less than I'd have if I started at age 62 instead.
Anything can happen
Investing isn't for everyone, especially in retirement when money is could be tight and there's less time to make up for bumps in the road.
As we've seen in the past, market's can rise, or fall, in any given period of time and that could significantly alter my projections and my strategy. Additionally, a loss of income, illness or a disease, or any other financial hiccup could mean that my plans change dramatically in the future.
But at least for now, the ability to invest this money and potentially build a larger nest egg for my family has me thinking I'll take my Social Security at age 62, rather than wait.
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