Waiting as long as you possibly can to claim Social Security retirement benefits makes superficial sense. Holding off until you max out these benefits at 70 years of age adds roughly 25% more to your payment than you would have received by claiming at your official full retirement age (FRA) of between 66 and 67, maxing out your monthly payment.
Conversely, claiming at the earliest-possible age of 62 will cause your monthly check to be 30% less than your intended payment if you started benefits on reaching your FRA. (Adjust accordingly for filing dates between those two extremes.)
There's a case to be made, however, for claiming Social Security earlier rather than later despite the adverse impact it will have on the size of your eventual payment. I'm thinking about making that choice myself in the not-too-distant future -- and there are three specific reasons.
See if they apply to your situation as well.
1. Payment cuts may be coming sooner than later
The underfunding of Social Security is a tired and over-politicized debate that's likely to be resolved before it's allowed to become an actual problem. But on the off chance that it truly will force across-the-board payment reductions in the foreseeable future, claiming earlier will allow me to collect 100% of whatever age-adjusted amount I'm owed for a longer period of time.
In other words, I'd rather have all of a smaller amount I'm due for longer, rather than risk getting only part of everything I'm owed after waiting. That's a net win for me.
The most recent assessment of the program's health comes from the nonpartisan Committee for a Responsible Federal Budget, published in early June. It suggests that -- without any changes in the meantime -- Social Security recipients will see a 19% to 23% reduction in their payments come 2034.
I still won't be eligible for any benefits by then, although I'll be getting close. But if the Committee's projection is off by even just a few years, a reduction will impact me. That's why I'm watching the matter closely, since I could at least get a few years' worth of fully due benefits under my belt before suffering a reduced payment because of the program's solvency problems.
Note that I can afford to think like this because of the other two reasons I'm also considering claiming Social Security well before I turn 70.
2. I can get a better return on the money
The effective return on your money tied up by Social Security is fair -- but not great -- at roughly 2.5% last year, to round out a 40-year average of around 6%. You can typically expect a return of about 2% above any given year's rate of inflation (although 2023 was a stark exception that exacerbated the program's solvency problems).
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That's not to suggest your eventual benefits payments are determined by the returns the Social Security Administration (SSA) achieves on what's currently a $2.7 trillion pool of assets. They're not. While higher interest rates certainly help grow this fund, which exclusively owns government-issued bonds, the bulk of the payments the program is making to retirees right now are funded by the FICA taxes that workers are currently paying into Social Security; its assets are mostly just a buffer to smooth out ebbs and flows in peoples' taxable incomes. Higher interest rates earned by this pool of money simply help keep the program flexible.
Even so, once you turn 62 and become lifetime-eligible for at least some Social Security benefits, your risk-versus-reward math changes. There may not be many additional advantages in waiting all the way to age 70 to file. (That's particularly true if your highest-earning 35 years are in the rearview mirror, rather than ahead of you.)
If you can put this money into the stock market and earn something closer to its average annual gain of about 10%, for instance, you may be better off in the long run even if you just end up converting this accumulated stash into an annuity, for another stream of lifetime income.
Most guaranteed lifetime-income annuities currently offered by private insurance companies are paying between 4% and 6% per year for people starting payments in their 60s, while folks starting to annuitize their nest eggs in their 70s can lock in rates on the order of 8% or more. Not bad.
But if annuities aren't your thing, that's OK. This is one example to compare to Social Security's lifetime income benefits. You can turn cash into reliable income in other ways, like owning quality dividend stocks. You just need the flexibility that the cash can provide, but Social Security doesn't offer.
3. I don't mind payment reductions due to work-based income
Finally, while I'll likely end up starting my Social Security retirement benefits well before I turn 70, I'm also likely to continue working (at least on a part-time basis) well after I initiate benefits.
Anyone who's looked into this already knows the risk here: Earning work-based taxable income after you've already begun receiving benefits could reduce those payments. This year, for anyone who's not yet at their full retirement age, the SSA will impose a $1 reduction in full-year retirement benefits for every $2 above and beyond $23,400 that they earn in taxable income.
Note that these rules change slightly for the year in which you reach your full retirement age. For people reaching their FRA in 2025, the Social Security Administration will deduct $1 in benefits for every $3 earned above $62,160. Both income thresholds are regularly raised.
So the concern is a reasonable one -- anyone under their FRA who's earning enough work-based income could easily end up completely negating their Social Security payment. Here's what many people don't realize about this rule: You're not actually losing money. The SSA credits your future benefits accordingly, raising them to reflect the amount of money you didn't end up receiving in the meantime.
Still, why would you bother claiming benefits, knowing your work-based compensation would likely mean you don't end up collecting much -- if any -- Social Security yet? That's a legitimate argument against the idea, if you're under your FRA and don't want to deal with the headache of ever-changing annual income, or keeping the SSA informed.
If you've already reached your FRA (around age 67), though, you've got the best of both worlds. Not only can you earn as much as you want on the job during this time without undermining your current Social Security payments, but if you're earning enough taxable income, you may even end up bolstering your future monthly benefit.
Just be careful if this is your plan and you're currently under your full retirement age. See, once the SSA recalculates what it owes you each month based on your prior year's income, you're stuck with that payment for a whole year until it's recalculated and adjusted. Also know that the reporting process can be a bit of pain if you're self-employed, especially when your income and work schedule are inconsistent. Contact the SSA for details if that applies to you.
