You'd be hard-pressed to find someone who is a bigger advocate of taking Social Security as soon as possible -- at age 62. Study after study has shown that when we enter retirement, our levels of happiness, contentment, and relaxation skyrocket -- while anxiety plummets. I would wager that autonomy over time -- which is the direct result of the freedom Social Security can help provide -- is the main reason.
Yet here I am, writing about why it's dumb to take Social Security as soon as possible. That's because one-size-fits-all thinking sounds nice on paper, but it ignores the complexity of the world we live in. Acknowledging that complexity, here are two situations when it's dumb to take Social Security at 62.
1. Can't make ends meet
While I'm also a big proponent of "money doesn't buy happiness," there are limits to this dictum. Study after study -- as well as some simple reflection on our own lives -- makes it clear that additional money adds very little life satisfaction once a basic baseline has been met.
What is that baseline? It depends on a lot of things: where you live, the status of your physical health, and even the number of people in your household. In its simplest sense, this means having your food, water, shelter, and safety needs being met.
The average Social Security benefit a recipient gets is about $1,300 per month -- or around $15,600 per year. For many households, that's not enough to pay the most basic of bills. Without any extra sources of passive income -- like pensions, retirement savings, or rental income -- times might be so tight that your basic well-being might suffer.
What alternative do you have? If you are able to and you continue working, you can delay claiming Social Security. If we assume a hypothetical retiree claims Social Security at 62 and gets $15,600 per year, look at how those payouts change over time given a later claim date.
Of course, the trick here is to firmly establish where your "enough" level really is. Once you begin putting off Social Security purely to increase your monthly check -- and after your basic needs can be met -- you are unwittingly sacrificing the freedom of your increasingly limited time.
2. Consider where your partner will be once you pass away
Here's a crucial Social Security rule to remember: When you pass away, your spouse will keep the higher of your two monthly benefits. That means that, no matter what, the size of the monthly deposit arriving in your joint bank account will go down. Just how much it will go down is up to you.
Consider this: A married couple -- Pat and Robin -- worked hard during their younger years, but for various reasons, they were not able to save very much. Therefore, they will be relying on Social Security for the bulk of their retirement income. After they run the numbers, the couple determines that they could both file for benefits at 62 and make ends meet.
However, there are two other factors to consider:
- Because of a history of higher-paying jobs, Pat is eligible for a much higher Social Security benefit than Robin.
- Pat's life expectancy is much shorter than Robin's, based on both family history and personal health.
When you combine these two facts, it might actually make more sense for Pat to delay filing for benefits until as late as possible. It's highly likely Robin will outlive Pat, and Pat wants to make sure Robin is left with enough money to make ends meet.
The only way to do this is for Pat to delay -- for as long as reasonably possible up until age 70 -- filing for Social Security.
As you can see, the very process of deciding when to file for Social Security can be a confusing one. That's why it's important to take inventory of what it is you really want out of retirement, and figure out the strategy that best fits your own personal situation.
Often times, I think this means claiming benefits as soon as possible. But as you can see above, there are times where it's simply dumb to claim Social Security at age 62.