Social Security benefits first become available to most people when they turn 62, and more people claim their benefits at that age than at any other. Even though the way that Social Security is structured offers enhanced benefits to those who wait until age 66, many people choose not to wait. Below, we'll look at several reasons why people decide not to delay and assess which of those reasons are the best.
1. You need the money.
The sad fact is that many people are woefully underprepared for the financial burdens of retirement. The majority of Social Security recipients rely on the program to provide more than half of their retirement income, and a disturbingly large number of people -- more than one in five married couples and two in five unmarried seniors -- get 90% of their retirement income from Social Security.
The level of poverty in retirement has hit crisis proportions, and these Social Security figures reflect it. In that light, many people who claim early simply have no choice, even though it means getting smaller monthly checks. These statistics serve as a warning to younger workers to save more during their careers, but by the time you reach age 62, it's often too late to do anything to enhance your ability to wait beyond the earliest possible age to claim Social Security.
2. You think the odds are against you.
Smart Social Security planning relies to some extent on playing the odds. The lower payments that early filers get hinge on life expectancy figures, with the idea that the Social Security Administration isn't aiming to change behavior but rather wants to offer different solutions that are equivalent from an actuarial standpoint.
If you think you won't live as long as life expectancy tables say you should, then claiming earlier than 66 can leave you ahead. That comes at the price of missing out if you're wrong and you live past life expectancy, because in that case, waiting would have resulted in your receiving greater benefits throughout your lifetime. General pessimism about life expectancy isn't enough to justify a decision based on this reasoning, but clearer signs like known medical issues can make it smarter to file as early as possible.
3. You think Social Security is doomed.
As misguided as this fear is, many people still think that Social Security will disappear at some point in the future. Those fears are based on a misunderstanding of the annual reports that Social Security provides about the health of its trust funds, which have accumulated payroll taxes and other revenue over the years and from which the program expects to draw excess funds to cover the demographic wave of retirees from the baby boom generation in the years to come. Current projections have the trust funds running out of money in the mid-2030s, leading some to think that they should claim early before the payments stop.
Even under worst-case scenarios, however, Social Security isn't going to disappear. The most recent report from Social Security's trust fund trustees show that payroll taxes should still be sufficient to cover about three-quarters of benefits. That could result in a pay cut -- assuming lawmakers do nothing over the next nearly 20 years to solve the problem -- but it won't cut off your benefits entirely. You're better off making decisions based on the assumption that Social Security will still be there rather than panicking by accepting smaller amounts of money and running.
Think about it
Waiting until 66 to claim your Social Security benefits will result in bigger checks than if you file early. Before you give those larger benefits up, make sure you understand the reasoning behind your decision. In some cases, you'll realize that you'll be better off waiting, and at the very least, going through the exercise will give you more confidence that the decision you make is the right one for your situation.