Instead of waiting to claim Social Security at my full retirement age or later, I plan on taking my Social Security at age 62, the earliest age possible. My decision to claim benefits early means I'll get a much smaller monthly Social Security check than if I waited, but I think claiming early is the best decision for me. Here's why.

Explaining my options

Social Security provides a valuable source of income to retired workers. It won't replace all of my pre-retirement income, but it's designed to provide the average retiree with about 40% of their pre-retirement wages.

A man sitting on the floor, points upward at a clock with the word success written above it, in front of a wall with various charts and diagrams.


To calculate my exact Social Security benefit in retirement, the Social Security Administration (SSA) adjusts my highest 35 years of income into current dollars to determine my average monthly pay. Then, it calculates my primary insurance amount -- or my retirement benefit at full retirement age (the age at which I can receive 100% of my benefit) -- by applying multipliers that only give me credit for a specific proportion of my average monthly income at different thresholds.

For example, if I were retiring in 2018, I'd get credit for only 90% of my income up to $895 per month, 32% of my income between $895 to $5,397, and 15% of my income over $5,397. 

The full retirement age for people turning age 62 in 2018 is 66 years and four months. However, the full retirement age will increase by two months per year until it reaches age 67 for people born in or after 1960, like me.

Although my full retirement age is 67, I can start receiving Social Security as early as age 62. If I claim at 62, however, I'll receive a reduced payment. Specifically, because Social Security reduces full retirement age benefits by 5/9 of 1% per month for the first 36 months and 5/12 of 1% for each additional month I claim early, I'll only receive 70% of my full retirement-age benefit if I begin receiving benefits at age 62. 

Alternatively, if I delay claiming my Social Security, I can receive a bigger payment. Specifically, Social Security awards delayed retirement credits that can increase my payment by two-thirds of 1% for every month I delay beyond full retirement age, up to age 70. In my situation, if I wait to claim benefits until age 70, I'll receive 124% of my full retirement-age benefit.

An old metal balance with a clock on one side and a dollar sign on the other side.


Why I'm taking Social Security early

According to the Social Security Administration, my estimated monthly benefit at my full retirement age of 67 is $2,178 per month. If I take Social Security at age 62, then I'll receive $1,525 per month. If I wait and take it at age 70, I'll receive $2,700 per month.

At first glance, it would seem smart to wait until age 70 to take my benefits. After all, my age 70 benefit is about 77% bigger than my age 62 benefit. Given the difference, I'd be crazy to take my benefits early, right? Not necessarily. You see, compound interest can make claiming early pay off.

You see, I plan on reducing my monthly expenses in retirement to levels that allow me to invest my Social Security income. If I claim at age 62 and invest my $1,525 monthly Social Security check into an S&P 500 index fund that returns a hypothetical average 6.5% annually, the value of my estate will be $593,104.23 bigger at age 80.

Alternatively, if I claim at age 67 and invest those higher monthly payments in the same investment and earn the same rate of return, my estate would only grow by $509,646.97 at age 80. Or if I wait until I'm 70 to start this strategy, my nest egg would only increase by an additional $437,219.29 at age 80.

My decision to claim early also is based on break-even analysis that shows that my total lifetime benefits from claiming at 62 are higher than claiming at other ages until at least my late 70s, without including any gains on money I invest.

Breakeven analysis showing lifetime benefits from claiming later don't exceed lifetime benefits from claiming early until my late 70s.

Chart by author.

Not for everyone

If I become sick, disabled, or unable to obtain part-time work that pays me enough to cover my expenses, I could be forced to change my plan. I might also have to rethink my strategy if Social Security's rules change dramatically.

Currently, couples who file their taxes as married filing jointly only pay income taxes on Social Security if their combined income exceeds $32,000. If that rule changes, it could affect my decision. Similarly, in 2018, people can earn as much as they want without it reducing their Social Security income after they reach full retirement age, but if their income exceeds $17,040 per year and they're between age 62 and full retirement age, it lowers their Social Security income by $1 for every $2 earned. If that changes, it could force me to reconsider, too.

There's also no guarantee I'll earn a positive return on my investment. History may be in my favor, but past performance -- as we all know -- isn't a guarantee of future returns. If I'm forced to withdraw money from my investment account during a downturn, I could end up doing so at a loss, and because I'm older, I'd have less time to make up for those losses. 

Clearly, retirement planning is complicated. In order to provide the best chance of achieving financial security in retirement, it helps to consider the benefits and risks associated with different strategies. In my case, I believe the right approach is to claim Social Security at age 62, but that doesn't necessarily mean it's the right choice for you.