You get choices when it comes to claiming Social Security. If you wait until full retirement age (FRA) to file, you'll get the complete monthly benefit you're entitled to based on your personal earnings history. But you can also claim Social Security early if you're willing to accept a reduced monthly benefit, or delay your filing up until age 70 for a higher monthly benefit.
The earliest age you can sign up for Social Security is 62. If your FRA is 67 (which is the case for anyone born in 1960 or later), then claiming Social Security at 62 will mean reducing your monthly benefit by 30% -- for life. So if you're going to file for benefits early, there should be a good reason for it.
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But what if that reason is to start a business of your own? That may be something you've always dreamed of doing. And it may be something that not only makes you happy, but serves as a solid income source throughout your retirement.
Filing for Social Security early and using your benefits to start a business could be a good idea. But it's important to recognize the risk involved of going this route.
When your business idea just doesn't pan out
Running a business could be a fulfilling way to spend your retirement. Seniors often struggle with boredom after their careers wrap up, so having a business to oversee could make for a more meaningful, enjoyable existence.
And let's not gloss over the financial upside, either. If your business is successful, it could serve as a nice source of income for you during your senior years -- so much so that the money you make can more than compensate for a lower monthly Social Security benefit.
That said, it's important to understand the risk of filing for Social Security early so you can start a business. It's common for new businesses to fail completely.
If you claim Social Security to start a business and your venture doesn't end up being successful, you'll be stuck with a smaller monthly benefit for life -- and no additional income from your business to help compensate. That's a pretty scary thought. So before you proceed with an early filing to get your business off the ground, make sure you have a solid plan.
And also, make sure you're willing to put in the time. Running a business can easily be a full-time job, and during a period of life when you may want some semblance of retirement, that level of work may not be optimal. But you might have to put in the time if you need the money your business generates because you're getting less from Social Security month after month.
All told, claiming Social Security early to start a business could work out for you -- or not. So think carefully about the pros and cons before making your choice. You may decide that starting a business in retirement is still a good idea, but that it makes more sense to claim Social Security at FRA and kick off that venture then.
