If you're like most Americans, Social Security is going to be a very important source of income when you retire. It's also one of the most flexible sources of retirement income people have access to, with retirees able to start receiving benefits anytime between age 62 (at a reduced monthly benefit) and 70 (at an increased benefit).
According to research at Boston College (covered by my colleague Matt Frankel), 62 is by far the most common age for people to claim Social Security. Nearly half of women and over 40% of men started receiving benefits at age 62, compared to only 4% and 2%, respectively, at age 70.
Plenty of people have good reasons to start at the earliest age, but there are some awful reasons, too. Too many people begin receiving benefits early and pay the price in later years with serious financial struggles. Keep reading to learn three reasons people take Social Security at 62, and why they could be mistakes.
Getting Social Security before it goes broke
Even though most Americans rely heavily on Social Security in retirement, the vast majority don't expect Social Security to still be around when they retire. And while there are problems with Social Security's long-term funding, there is also a lot of misinformation about its status.
Here's the short version of what's really going on: The Social Security trust funds -- the cash and investments held by Social Security -- are on track to run out by 2034. However, Social Security checks won't just stop when that happens, because Social Security taxes will continue to flow in, supporting around 77% of benefits the Social Security Administration is projecting it will pay in 2034.
You may ask, "Why is it a mistake to claim early because of this?" Two reasons. First, it's incredibly unlikely that Congress will just ignore this for 17 more years and then slash millions of retirees' incomes by 22% to "fix" it.
Second, most people who live to age 65 will make it past 80, and by taking Social Security at 62, your monthly benefit -- and the total money you will get from the system -- will actually end up being less. Here's a table that shows when you would really get the most total money:
As you can see, filing at 62 only "pays off" if you don't live past age 76. Most retirees will live past 80, especially women.
To put it bluntly, trying to game the system because of fears benefits will get cut is likely to backfire because it could leave you exposed to not having enough income later in life. Claiming Social Security at 62 -- at a 25% reduction in the monthly check versus age 66 -- is a surefire way to burn through your other retirement savings and end up with too little money when it's too late to do anything about it.
You want the extra money now but plan to keep working
This could be a big mistake for multiple reasons. First, it could backfire if you earn more than a certain amount. In 2017, every $2 you earn above $16,920 will cost you $1 in Social Security benefits. This could take a huge bite out of how much extra money you actually end up bringing home. This rule is in effect until the last full year before you reach your full retirement age -- between 66 and 67, depending on your current age.
It also brings us back to the impact that claiming early will have on your monthly benefit, which will cut into your income later in life. If you're able to keep working, it's generally in your favor to claim Social Security later. To do otherwise could force you into a situation where you have to work later in life when you don't want to.
Even worse, it could leave you on a fixed income that doesn't meet your needs when you're no longer able to work.
Your spouse is already retired
Depending on your financial situation, this could be a mistake. While it's important to maximize the time you can spend with your spouse when you're both older, the reality is you have to balance that with making sure you don't outlive your own financial assets. Too many younger spouses -- often women -- end up outliving their partner by years (even decades), almost always with far less income than they had when their spouse was alive.
This could mean that you need to continue working another year or two, even if your spouse is already retired, building up your retirement savings (which you also won't have to tap into as soon now), while also increasing the amount of the monthly benefit Social Security will pay you.
Instead of retiring and claiming Social Security, it may be worth cutting back on your work hours (if your employer is amenable to this) or working part-time for a few years. If you're able to make enough to delay having to take Social Security while also freeing up time to spend with your retired spouse, it could make a huge difference in the quality of your life and your financial situation if you outlive your spouse by more than you expect.
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