"Rebel children, I urge you, fight the turgid slick of conformity with which they seek to smother your glory."
-- Russell Brand
The idea of going your own way and not following the crowd is often appealing -- and it can make good sense now and then, too, such as in investing. But sometimes it's smart to do what everyone else does -- such as when it comes to starting to collect your Social Security benefits.
Image source: Getty Images.
The age at which most people start collecting Social Security is 62, the earliest age at which they can do so. Sometimes they do so because they have little choice -- perhaps because of a job loss -- but other times it's because it just makes sense for them. Here are five reasons you might want to claim Social Security early.
1. File for benefits at 62 in order to retire early
This might be the most obvious reason to file for Social Security benefits at age 62 -- because it can enable you to retire early. Why retire early? Well, remember that you don't know just when you'll die. Plenty of unfortunate souls pass away well before they expected to -- and if that happens to you while you're delaying your retirement, you'll miss out on a bunch of more carefree years.
The younger you are when you retire, the more active you can be in retirement. If you want to do a lot of golfing or want to take up flying lessons or plant a big garden of vegetables or wander through Europe's grand old cities, it will be easier to do when you're 65 than when you're 75. Early retirees often can enjoy their money more, being younger, healthier, and more able to travel, enjoy recreation, and so on.
Image source: Getty Images.
2. File for benefits at 62 because your total benefits will be close to even
If you know about Social Security benefits, you probably know that you can delay starting to collect them until age 70 and that the longer you wait, the fatter those checks will be. Indeed, for every year beyond your full retirement age that you delay, up to age 70, your benefits will increase in value by about 8%. Delay from 67 to 70, and you can make your checks fully 24% bigger. If you would have started collecting $2,000 per month ($24,000 per year) at 67, you can instead start with $2,480 per month (or nearly $30,000 annually).
That can seem very compelling, but hold on. The Social Security Administration has explained that, "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." After all, if you delay starting to collect from age 67 to age 70, you will miss out on three years' worth of payments (albeit smaller ones) -- that's 36 payments.
Delaying starting to collect can make sense in some cases, of course. Perhaps you're perfectly happy working and want to work until your late 60s or age 70 or beyond. Perhaps your family features very long life spans, in which case collecting bigger checks for a longer-than-average time can be worth it. If there's a good chance that you'll live an average-length life, though, starting to collect early can be smart.
Image source: Getty Images.
3. File for benefits at 62 as part of a spousal strategy
One reason many people used to start collecting at age 62 was in order to use the once-popular "file-and-suspend" strategy for couples. With it, you would file to begin collecting Social Security benefits but would then suspend the benefits, so that you wouldn't receive them yet, but they would still grow. Meanwhile, since you did initially file to begin receiving them, your spouse could collect spousal benefits based on your earnings. This was a strategy that let many couples have their cake and eat it, too -- but it's no longer available.
But there are other spousal strategies that can include early filing. For example, if you and your spouse have very different earnings records, you might start collecting the benefits of the spouse with the lower lifetime earnings record early, while delaying starting to collect the benefits of the higher-earning spouse. That way, you both get to enjoy some income earlier, and when the higher earner hits 70, you can collect their extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.
Image source: Getty Images.
4. File for benefits at 62 because you can afford it
Another good reason to claim Social Security benefits early is this: because you can afford to. You might not have enough socked away right now to retire right now, but there's a good chance that if you get more aggressive about saving and you invest your money effectively, you can make your retirement happen sooner. Being financially able to retire early will generally take some planning and diligence. Take some time to devise a plan, estimating how much income you'll need in retirement and how you'll get it. Here's how much you might amass, depending on how far from retirement you are:
|
Growing at 8% For ... |
$5,000 Invested Annually |
$10,000 Invested Annually |
$15,000 Invested Annually |
|---|---|---|---|
|
10 years |
$78,227 |
$156,455 |
$293,243 |
|
15 years |
$146,621 |
$293,243 |
$439,864 |
|
20 years |
$247,115 |
$494,229 |
$741,344 |
|
25 years |
$394,772 |
$789,544 |
$1.2 million |
Calculations by author.
Some or much of your nest egg might be used to buy fixed annuity income, and/or parked in dividend-paying stocks. A $300,000 portfolio with an average dividend yield of 4% will generate $12,000 per year -- $1,000 per month. There are ways to boost your income in retirement, too.
Image source: Getty Images.
5. File for benefits at 62 because you can change your mind
Finally, another reason to file for your benefits at 62 is because it's not necessarily a permanent decision. You can change your mind.
It's a little tricky, but here's how it works: If you file to start collecting benefits at age 62 and then at age 63 decide that you want or need to reenter the workforce, you can pay back the money you received from Social Security and then file to start collecting benefits again at a later date. There are some other rules, too -- such as the fact that you can only do this once and you can only do it within 12 months of claiming your benefits. Also, if anyone else is collecting benefits based on your income record (such as your spouse), they will have to consent to your plan.
There's another workaround, too. Social Security reduces your Social Security check by $1 for every $2 you earn in income from working above $16,920 if you're under your full retirement age. If you're at or older than your full retirement age, your benefits are docked above $44,880. (These numbers are for 2017.) Thus, much of your benefits will be withheld -- not denied -- if you work significantly after claiming benefits. What happens to that money? Well, it's used later to increase the size of your monthly payments.
Everyone's situation is different. Take a close look at your own and see how early you might be able to claim your Social Security benefits. Even if 62 seems impossible, you still may be able to retire and claim them earlier than you initially planned.
