Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money. -- attributed to Jonathan Clements
We all want to enjoy our retirement, and none of us wants to run out of money. It's therefore a tricky thing, deciding when, exactly, to retire. There are many decisions related to that, too, such as when to stop working entirely, whether to work part-time in retirement for some years, and when to start collecting Social Security. You can start collecting Social Security retirement benefits as early as age 62, and as late as age 70. (You can claim later than 70, but there's no benefit to that.)
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The most common age at which people start the Social Security income train rolling is 62. Here are some reasons why you might not want to do that.
1. Starting at 62 means smaller checks
The key thing to understand about starting to collect your Social Security benefits early is that doing so will shrink the checks -- just as delaying starting to collect them beyond your "full retirement age" (66 or 67 for most of us) will plump them up. Indeed, if you expected to collect $1,000 per month starting at age 67, starting at age 62 would shrink that benefit to $700, while delaying until age 70 would get it to $1,240. That's a drop of nearly 44% if you opt to start at 62 instead of 70.
These differences aren't really quite that stark, though. Starting early means smaller checks, but you'll receive many more of them, and starting late means bigger checks, but fewer of them. The system is designed so that those who live average-length lives will get roughly the same amount, in total, from the program no matter when they start the checks rolling.
2. Starting at 62 means smaller COLA increases
This detail may be obvious, but many people don't think about it. In most years, Social Security benefits receive a "cost-of-living adjustment," or "COLA." There was a big one, 5.9%, in 2021, which followed 2020's 1.3%. In some years, it's zero. But whatever the increase is, the bigger your check is, the more additional dollars you'll receive.
For example, consider that the average monthly Social Security retirement benefit was recently $1,666 (about $20,000) per year. If it increases by 5.9%, it becomes $1,764 -- an increase of $98. Now imagine that you were collecting a smaller sum, because you started receiving Social Security early. If your benefit was $1,200, the 5.9% bump would increase the size of your checks by nearly $71, about $27 less than with the bigger check. Over 12 months, that $27 difference will total $324. Over many years, the potential income lost will grow.
3. An early retirement can cost you
Finally, retiring around age 62 might have some undesirable consequences. It means your retirement will be longer, yes, but it also means that your nest egg will have to support you for more years. Delaying retiring -- and delaying starting to collect Social Security -- can mean a few more years for you to save and invest for retirement, bigger Social Security checks, a bigger nest egg that will need to support you for fewer years, and perhaps a few more years on your employer's health insurance plan.
Remember that Medicare coverage is available starting at age 65, so retiring at 62 means you may have to pay a lot more for healthcare for a while. Also, while you're working and not yet on Medicare, you (and your employer) may be able to contribute more to your Health Savings Account (HSA) -- and that can mean more money available to pay for healthcare expenses in a tax-favored way.
Reasons to start collecting Social Security benefits early
Despite all the issues above, there are still some good scenarios in which to start collecting your benefits early. For example:
- You have a decent chance of living a shorter-than-average life, in which case starting to collect soon will deliver more benefit dollars, in total.
- You need to retire early to care for a loved one and simply need the income.
- You want to retire early to be able to enjoy a longer retirement -- and you can afford to do so.
- You have been forced out of the workforce and are retiring early not by choice.
The decision-making will be different for each of us, so take some time to learn more about Social Security so that you can make the best choices for yourself and your family.
