If I wait until age 70 to begin collecting Social Security, I'll pocket 24% more than if I start receiving my benefits at age 67, which is my full retirement age. If that sounds like a good deal, you're right. It's a guaranteed increase in Social Security income of 8% per year. I won't deny it. That extra money could come in handy. Yet, I still plan to take my Social Security at 62. Here's why.
Early, on time, or late?
Social Security allows me to start collecting my benefits at any point after age 62. However, if I take Social Security at age 62, I'll get less per month than I'd get at my full retirement age and much less than I'd get if I wait until age 70 to claim.
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That's because Social Security reduces benefits by a fixed percentage for every month claimed earlier than full retirement age, and it increases benefits by a fixed percentage for every month claimed after full retirement age. Full retirement age varies between age 66 to 67 for people born after 1943, but for people born in or after 1960 -- like me -- it's age 67.
According to the Social Security Administration's estimates, my full retirement age monthly benefit is $2,178 per month. If I take Social Security at age 62, I'll receive $1,525 per month, and if I wait until age 70, I'll receive $2,700 per month. This means that if I claim at age 62, I'll receive only 56% of my age 70 benefit.
At first blush, that makes claiming early seem silly. However, if you consider my options more carefully, you'll see why I think I can make a good argument for claiming early, despite the smaller payments.
My breakeven point
Yes, waiting to claim nets me a bigger check every month, but it also means forgoing eight years' worth of monthly payments. In my case, if I wait to claim until I'm 70, the total amount of Social Security benefits I collect in my lifetime won't exceed the amount I collect if I claim at age 62 unless I live to almost 80 years old. Of course, I hope I'll live longer than 80 years old, but there's no guarantee that I will.
Chart by author.
Furthermore, my breakeven point could actually be much older than 80 because I plan on investing as much of my Social Security income as possible. My goal is to be debt free in retirement and to continue working part-time as long as possible.
If I can execute my plan, I should be able to invest all of my age 62 benefit amount, or $1,525 per month. If I earn a hypothetical 6.5% per year, then I'll have accumulated $593,104.23 in savings by age 80 on my total lifetime payments of $329,400.
For perspective, if I wait until age 70 to claim Social Security and then invest my entire $2,700 per month in that same investment, I'd only have $437,219.29 at age 80.
I'll probably start spending my income at that point rather than investing it, but if I did keep investing my monthly income, claiming at age 70 still wouldn't break even with claiming at age 62 at age 89, if I earn an average 6.5% annually.
Chart by author.
What could go wrong?
I think I'll be better off claiming early and investing my Social Security, but that doesn't make this the right strategy for you. When to claim Social Security is a personal decision, and my strategy is risky. I could get sick, become disabled, or be forced to stop working in retirement. Furthermore, I could lose money on my investments or Social Security's rules could change in ways that make this strategy less attractive. In short, there are many things that could derail my plans. Nevertheless, my plan right now is to begin receiving my Social Security benefits as soon as I can rather than wait.
