Figuring out when to start taking Social Security benefits is one of the most important financial decisions that retirees will ever make. With the promise of higher monthly checks for those who are able to wait before claiming their benefits, most experts advise putting off your Social Security start date as long as possible.
But despite the higher payouts available from waiting, taking Social Security before benefits max out at age 70 isn't always a dumb move. Here are three situations in which waiting as long as you can before receiving Social Security benefits doesn't always make sense.
1. When the odds are against you
Most analysis of Social Security focuses on what's called the breakeven date, which refers to when those who wait to collect larger benefits finally catch up with those who took smaller benefits early. Those who take benefits at age 62 receive only half the money that those who wait until age 70 get, but in return, early filers get eight extra years of those smaller payments.
Even if you assume a zero return on the money you take early, most breakeven dates occur in your late 70s. If taking early benefits allows you to keep other assets invested and earning better returns, the breakeven date can extend into your early 80s. For instance, dividend ETFs Vanguard High Dividend Yield (VYM -0.04%), iShares DJ Select Dividend (DVY -0.25%), and SPDR S&P Dividend (SDY 0.21%) all pay income in the 3% yield range and have produced strong capital gains as well, and those who've been able to keep more money invested in those ETFs by taking early Social Security have reaped strong returns lately.
So as you approach the age-62 early benefits date, if you have reason to believe that your life expectancy will fall short of your breakeven date -- and your decision won't adversely affect other family members -- then considering not waiting could give you more money than waiting for larger benefits that you won't be able to take full advantage of.
2. When spousal benefits offer you a double-dip
One of the most popular Social Security strategies lately involves married couples who try to make the most of their joint benefits. Under the file-and-suspend strategy, a spouse can apply for a benefit based on the other spouse's work record while still waiting until later to collect benefits based on his or her own work record. Spouses have to wait until full retirement age, currently 66, to use this strategy, but in some cases, couples get more money from Social Security than they'd get simply by having both spouses wait until age 70 to file for benefits.
3. When you're consciously making a lifestyle decision
As you age, it's difficult to predict what your life will be like even just a few years into the future. Long-held dreams of a vacation lifestyle can go up in smoke if injuries, illnesses, or other health complications strike.
Deferring Social Security benefits is a bet that you'll get more use out of having bigger monthly checks in the future than from having a more modest income earlier. Taking benefits early may not maximize the dollar amount you receive over your lifetime, but it may give you that money at a time when you'll enjoy it the most.
Look at all the factors
To be clear, many people do have dumb reasons for taking Social Security early. Fears that Social Security won't be around to pay benefits are highly overblown, and being paranoid about losing benefits down the road can lead to bad decisions. But with several legitimate reasons to consider taking benefits early, you shouldn't shortchange yourself by assuming that it's always smartest to wait as long as you can.