When it comes to certain aspects of life, I can admit that I tend to be a bit stubborn. For example, there is only one acceptable paper towel brand in my household. And if my spouse dares to buy another brand because it's on sale, he'll hear about it. Repeatedly.
But as set in my ways as I may be in some regards, I think it's important to be open to different lines of thinking in the context of financial planning. And one area where I've had a huge change of heart is none other than Social Security.
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Why I changed my tune on claiming Social Security at 62
Social Security is a program millions of older Americans today rely on. And you get a choice on when to sign up.
If you wait until full retirement age, which is 67 if you were born in 1960 or later, your get your monthly benefits without a reduction. Those benefits are calculated using a formula that takes your 35 highest-paid years of earnings into account.
However, you have plenty of options for claiming Social Security outside of full retirement age. You could delay your claim until age 70 for boosted monthly checks. Or, you could sign up earlier than full retirement age.
That could mean claiming benefits at 65, which is when Medicare eligibility generally begins. Or, it could mean signing up for Social Security at the earliest possible age of 62.
Now I can admit that for many years, I was convinced that claiming Social Security at 62 was a terrible idea. After all, why slash the one income stream of yours that's guaranteed for life?
But clearly, I no longer feel that filing for benefits at 62 is silly. For many people, it could work out very well financially.
In the past couple of years, I've attended far too many funerals or sent far too many sympathy cards for people who passed away in their early or mid-70s. Some of these deaths were not such a surprise, like an old neighbor who was in poor health for many years. Others took everyone by shock.
All of this made me realize that longevity is not guaranteed. And for some people, claiming Social Security is 62 could be the ticket to getting the largest lifetime payout.
The numbers don't lie
Let's say you're eligible for $2,000 a month in Social Security at age 67. If you sign up for benefits at 62, you'll only be looking at $1,400 a month instead.
If you live until age 80, you'll come out ahead in terms of lifetime benefits by claiming Social Security at 67. In that case, your lifetime payout will be $312,000, compared to $302,400 if you sign up at 62.
But if you only live until age 75, the numbers look different. In that case, claiming Social Security at 67 will give you a lifetime payout of $192,000, compared to $218,400 by signing up at 62.
Now you'll often hear that you should consider the state of your health when deciding when to claim Social Security. If you're in great physical shape, it could pay to sign up for benefits at full retirement age or later. If your health is poor, that's when claiming early is often advised.
But roughly one year ago, I attended the funeral of a person who was in perfectly good health at 73 and no longer around at 74. And it helped me realize that being in great shape at 62 doesn't guarantee a long life, as nice as that would be.
You need to do what's best for you
I want to be very clear that there's no single right or wrong age to claim Social Security. It's a very personal choice, and it needs to be based on a number of factors outside of your health, including:
- The amount of retirement savings you have.
- Your retirement income needs and goals.
- The needs of a potential surviving spouse.
My main point, rather, is that there's merit to claiming Social Security at the earliest possible age of 62. And you're not necessarily denying yourself guaranteed income by going this route. You may end up shrinking your benefits on a monthly basis, but that doesn't mean you'll get less Social Security all in.
My secondary point is that it's important to be open-minded when it comes to financial decisions. It's easy to get locked into a certain line of thinking. But I'd recommend reading up on different Social Security filing strategies or, better yet, consulting a financial advisor to see what they suggest based on your individual circumstances.
On my end, I'm glad I was willing to open my mind and think more critically about the benefits of filing for Social Security as early as possible. That doesn't mean I'm going to bend on the paper towel debate at home, but one baby step at a time.
