When we talk about when to first start taking Social Security, we're usually looking at a specific eight-year range. The earliest age you're allowed to claim benefits is 62, and as such, it's the most popular age to file for Social Security. Age 70, meanwhile, is the latest age you can claim Social Security and still get credit for delaying your benefits -- so while you technically don't have to file for benefits when you reach 70, there's zero incentive to wait any longer.
If you don't choose to file for Social Security as early as possible (62) or as late as possible (70), you can claim your benefits somewhere in between. Many recipients, in fact, opt to wait until they reach their full retirement age because that's when they can collect their base benefit amount in full. If you were born in 1960 or later, your full retirement age is 67, which means claiming benefits before 67 will result in a reduction, and postponing past 67 will result in an increase. And while there are plenty of good reasons to take Social Security at 67, here are a few scenarios where it just plain doesn't make sense.
1. You need the money sooner
If you're struggling financially in your early to mid-60s but haven't yet reached your full retirement age of 67, you may be inclined to hold off on Social Security. After all, claiming early will result in a permanent benefits reduction. But while slashing those payments isn't ideal, racking up debt so late in life to cover your living costs is a far more dangerous prospect.
Imagine your Social Security checks spell the difference between covering your living costs as a senior or charging a chunk of your basic expenses on a high-interest credit card. While you'll take a hit on your monthly benefits by filing early, you'll come out ahead in the long run by avoiding a perpetual spiral of compounding credit card interest.
Remember, for every year you take Social Security early, you'll lose 6.67% of your benefits for up to three years, and then 5% a year thereafter. On the other hand, if you end up charging the same amount you'd get in benefits on a credit card each month, your interest rate will be probably be somewhere in the 12% to 20% or more range -- which means you're better off taking a hit on benefits and having access to that cash.
2. Your health is poor
The tricky thing about filing for Social Security early is that any reduction you get in benefits will remain in effect for life. But if you're not expecting to live very long, you'll actually come out ahead by filing early.
Imagine you're eligible for $1,500 a month in benefits if you were to wait until age 67 to first start collecting. Filing at age 62 will reduce those benefits by 30%, so you'll be left with just $1,050 a month. Now if you live until age 78.7, you'll pretty much break even regardless of whether you start getting paid $1,500 a month at age 67 or $1,050 a month at age 62. But if you pass away sooner, you'll actually lose out by having waited until 67. In fact, if you only live until 70, you'll come out almost $47,000 ahead by filing at 62 and taking the hit.
When you think about claiming Social Security, you need to be realistic about the state of your health and associated life expectancy. Though it may be unsettling to predict your own mortality, claiming early can work out in your favor if you don't end up living all that long.
3. You're afraid Social Security will run out of money
Even if you don't need the money from your Social Security payments at age 67 (say, you're still working, or have ample savings to pay your living costs), you may be inclined to file for benefits because you've reached full retirement age and want to collect your cash before the program runs out of money. But that's actually not a good reason to claim benefits at 67 at all. While Social Security is facing a deficit, the program is by no means going broke. Even if Congress doesn't come up with a fix, come 2034, once the program's trust funds run dry, incoming tax revenue will still be enough to pay 79% of scheduled benefits.
In other words, Social Security has the means to keep up with benefits in full for another 17 years, and Congress has close to two decades to come up with a game plan to address the program's projected shortfall. So rather than rush to claim your benefits the moment you reach full retirement age, hold off a few years and snag that 8% boost. This way, once you do start collecting your payments, you'll have more money to enjoy.
Though taking Social Security at 67 makes sense for some people, these are three scenarios where it just isn't a smart move. Before you file for benefits, think about the advantages and drawbacks of claiming them at various ages. This way, you're more likely to arrive at the decision that's right for you.
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