If you've done any research into the matter at all, then you're almost certainly familiar with the merits of waiting until you turn 70 years old to file for Social Security retirement benefits. That's when your payments reach their maximum possible level.
Indeed, for today's retirees, waiting until you're 70 to claim these benefits adds on the order of one-fourth more than you'd be getting every month if you filed at your official full retirement age of between 66 and 67 (depending on the year in which you were born).
To say there's no good reason to file for Social Security benefits at the earliest possible age of 62, however, just isn't accurate, even if doing so results in considerably smaller payments of up to 30% less than what you'd get by holding off until your full retirement age.
With that as the backdrop, here's a rundown of three reasons you might be smart to claim Social Security as soon as you're 62 years old -- from least good to the absolute best.
3. You're worried about the program's ability to continue paying
It's a worry and warning that's been circulating for years now. That is, the possibility that the Social Security program won't be able to continue making payments as previously expected.
Each go-around, however, feels a little more dire than the last. As of August last year, Social Security's own actuarial projections suggest that by 2032, the program will be legally forced to reduce its payouts by 24%, assuming no fixes are made in the meantime. And this outlook jibes with similar math done by the Congressional Budget Office.
The choice, of course, may not apply to you. If you're not going to be 62 years old by then and if payment cuts are indeed imposed, for instance, you'll have no choice but to initiate your payments at levels that are 24% less than what you would have otherwise received had the program remained fully solvent.
And simply starting your benefits sooner doesn't mean you'll escape any such cuts either. After all, these payment reductions will be applied across the board to existing and future recipients alike. But you could get at least a few more years of full (albeit reduced for claiming early) benefits before sweeping, and possibly permanent, payment reductions are made.
2. You've got a specific growth plan for this income
Regardless of the possibility of future benefits reductions, there's a case to be made for initiating your benefits at the age of 62 whether or not you need the money. That is, if you've got a plan to grow these cash payments by investing them in something with returns that exceed the net benefit of waiting until you're older to begin collecting Social Security.
This probably won't work out for most people. Scenarios where it might prove advantageous, however, are with higher earners who are confident they'll be able to continue working well beyond the age of 62, and perhaps even until the age of 70, when the upside of waiting to file stops accumulating. Since these people likely won't need to spend their Social Security income while they're collecting it and can instead invest and grow this cash for at least a few more years, they may be better served in the long run.
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Just bear in mind that the sort of returns you'll need to achieve on this money for the strategy to pay off. The benefit of waiting to claim only adds an inflation-adjusted upside of between 2% and 6% to your Social Security payments for every year you wait, or similarly, about 2% to 3% above any given year's rate of inflation. That's certainly beatable with stocks, and, in the right economic environment, even with bonds.
The prospective stumbling block? People around this age who are so close to retirement probably won't want to take on a great deal of exposure to the stock market in order to achieve these kinds of net investment returns. It would need to be done with a relatively defensive portfolio.
But isn't there a penalty for earning work-based wages while also collecting Social Security retirement benefits? Yes and no. While it is true that the program reduces your benefits payments once your wages exceed a reasonably generous threshold, you don't lose them. These deductions are returned to you in the form of bigger payments in the future.
1. You just need the money right now
Finally -- and perhaps most importantly -- the top reason to claim Social Security retirement benefits at the age of 62 is simply because you need the money now. What qualifies as "need" is of course subject to debate. You arguably need healthcare. You probably don't need a vintage muscle car restoration project taking up room in your garage as well as consuming more money than the vehicle often ends up being worth.
Other spending decisions will be more nuanced. For example, unexpected health problems may be forcing you to take on interest-accruing debt. Even if it's conceivable that the reason for moving deeper into debt could eventually abate, interest costs on your borrowing might grow your total debt burden to an amount that can't be easily tackled -- even with the higher benefits payments that result from waiting to claim Social Security benefits.
Not all decisions to file early will necessarily be mathematically complicated ones. If a lack of income is causing you a health-threatening degree of stress right now and all other options have been exhausted, for instance, the case for filing at the age of 62 despite a lower benefits payment is still pretty solid.
In other words, don't let a relatively small money problem grow into an unwieldy one. If nothing else, claiming Social Security when you're 62 could buy you the time you need to regroup your finances, like downsizing your home or paying off a nagging bill. It may even give you the time you need to find a part-time job that works for you in retirement, perhaps even leaving you in a better financial position than you'd otherwise be in.
