Patience pays off in most cases. That's true with collecting Social Security retirement benefits. The longer you wait (at least until age 70), the more you make.
That's why most financial advisors will recommend that you hold off until your full retirement age (FRA) or longer to begin receiving Social Security benefits. That's good advice for many people. However, I'm going to go against the conventional wisdom. Here's how claiming Social Security at age 62 could be a brilliant move.
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"Could" is the operative word
Let me first stress that "could" is the operative word in my contention. There's no question that your monthly retirement benefit from Social Security will be higher if you wait until you're well older than age 62 to file.
For every month you collect Social Security benefits during the 36 months before reaching your FRA, you'll be penalized five-ninths of 1%. If you begin receiving benefits even earlier, you'll be penalized five-twelfths of 1%.
If your primary source of retirement income is Social Security, collecting benefits at age 62 definitely won't be a brilliant move from a financial standpoint. Even if you have other sources of income during your retirement years, receiving benefits at the earliest age possible still might not be wise.
A negative scenario for when Social Security at 62 could be best for you
However, there are at least two scenarios where claiming Social Security retirement benefits at 62 could be best for you. And they're at extreme ends of the scale.
The negative scenario is when you have good reason to expect that you won't live past your late 70s. If your FRA is 67 (which is the case for anyone born in 1960 or later), you'll need to reach around age 78 and eight months for your cumulative retirement benefits from holding off until age 67 to top the cumulative amount received by collecting benefits at age 62.
Of course, there's a possibility that you'll live longer than you expect. If you're alive and kicking well beyond the break-even point, you would have been better off financially waiting until your FRA to claim Social Security retirement benefits.
A positive scenario for when Social Security at 62 could be best for you
Now for a more upbeat scenario. Let's assume you are highly motivated to retire early from your job, but don't have enough other sources of retirement income to be able to completely step away. It's possible that collecting Social Security benefits at age 62 could tip the scales enough for you to retire.
There's also a different twist to this scenario when claiming Social Security at 62 could be a smart move. Suppose you don't have enough money to fully retire even with your Social Security benefits. You could claim Social Security but continue to work at another job, perhaps part-time. This approach would enable many individuals to leave the job they're highly motivated to quit, instead of slogging it out for several more years.
Granted, if you make too much money from working, your Social Security retirement benefits will be reduced. If you're under your FRA, $1 will be deducted from your benefits for every $2 you earn above an annual limit. This limit is set at $22,320 for 2024.
In the year you reach your FRA, $1 will be deducted for every $3 you earn above a higher limit ($59,520 in 2024). The good news, though, is that you'll get all of the withheld amounts back once you reach your FRA.
It's true that your Social Security benefit will still be lower than it would've been if you'd waited until your FRA or later. However, claiming at 62 could help you achieve your goals. For many people, achieving those goals is a more brilliant move than making more money.
