3 Reasons to Claim Social Security Early

Claiming your benefits early will shrink them, but that may not matter at all.

Selena Maranjian
Selena Maranjian
Jul 7, 2019 at 8:03AM
Investment Planning

Social Security income is critical to most retirees. Fully 48% of married elderly Social Security beneficiaries and 69% of unmarried ones get 50% or more of their income from it, per the Social Security Administration (SSA). Thus, it's kind of important to make smart decisions regarding it, so that you can get as much income out of the program as possible.

Here's a look at three reasons why you might want to claim Social Security benefits early.

A yellow road sign that says retirement ahead.

Image source: Getty Images.

No. 1: Because you have to

This is an easy one, because it involves little decision-making. If you simply need the income and you're old enough, you might file to start collecting. This might happen if you unexpectedly lose a job or if you encounter a health setback that leaves you not earning enough.

More than half of retirees -- 56% -- retired sooner than they'd planned to, according to the 2018 Transamerica Retirement Survey of Retirees. When asked why, 24% of them cited a job loss and 47% cited health or family-related causes. ProPublica.com's research supports the frequency of unexpectedly early retirements, noting: "...more than half of older U.S. workers are pushed out of longtime jobs before they choose to retire, suffering financial damage that is often irreversible."

No. 2: Because it's a wash

Another reason many people might choose to start collecting benefits early is because it can be a wash. You're eligible to receive your full Social Security benefit at your "full" retirement age, which is 66 or 67 for most of us. But you can start collecting as early as age 62 and as late as age 70. For every year beyond your full retirement age that you delay starting to collect Social Security, your benefits will grow by about 8%. Delay from age 67 to 70, and you'll get benefits that are 24% bigger, enough to turn a $2,000 check into a $2,400 one. If you start collecting early, your benefits can shrink by up to 30%.

That can make it seem like delaying is absolutely the best move, but that's not necessarily the case. While starting to collect early will give you smaller checks, you'll get far more of them. Indeed, according to the Social Security Administration, "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." So if you live an average-length life, it's pretty much a wash, and collecting at 62 can make a lot of sense.

Think your situation through carefully, though, because delaying might still make sense -- such as if you want to get as big a benefit check as you can so that if you die before your spouse, he or she will get to collect your larger benefit instead of their own smaller one. Delaying can also be worthwhile if your family tends to feature many 90-something people.


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No. 3: To retire early

Finally, starting to collect your Social Security benefits early can help you achieve a wonderful goal -- retiring early. Not everyone will have socked away enough money to enable them to do that, but you may be among those who have a substantial war chest. If so, Social Security income may make the difference that enables you to stop working around age 62.

The table below shows how much income you might generate with nest eggs of various sizes using the flawed, but still helpful, 4% rule. That rule has you withdrawing 4% of your nest egg in your first year of retirement and then adjusting for inflation in subsequent years.

Nest Egg

4% First-Year Withdrawal

$250,000

$10,000

$300,000

$12,000

$400,000

$16,000

$500,000

$20,000

$600,000

$24,000

$750,000

$30,000

$1 million

$40,000

Source: Author calculations.

You can use the table above to get a very rough estimate of how much income your nest egg might generate. To that you can add your expected Social Security income. The average monthly retirement benefit was recently $1,470, which amounts to $17,640 annually. If you earned more than average in your working life, though, you'll collect more than that.

An early retirement can sound idyllic, as you'll likely get to do all kinds of things you've long wanted to, such as traveling around Europe in a leisurely fashion or planting and caring for a very large garden. Know, though, that some people end up bored, restless, or even lonely, without the structured day and socializing that their jobs provided. Think about how well an early retirement would suit you.

And as you decide, factor the benefits of working longer into your decision-making. The longer you work, for example, the fewer years your nest egg will need to support you, which can be helpful. While you work, you may also enjoy employer-sponsored health insurance and the ability to keep saving via a 401(k), not to mention your IRA(s) and other savings accounts.

Base your decision on when to start collecting Social Security benefits on a close look at your financial condition, your goals, and your risk tolerance. Know, too, that there are ways to increase your Social Security benefits even more.