Many experts insist that people should generally avoid taking Social Security benefits early. As I've noted on multiple occasions in the past, their position is based on the fact that the size of your benefits is inversely related to the age at which you elect to receive them.
If you take Social Security benefits at age 62, which is the earliest possible time to do so, then your monthly check will be 25% smaller than it would have been had you waited until full retirement at 66. Alternatively, if you defer benefits until turning 70, then your check will be 32% larger than your primary insurance amount.
Because of this difference, the conventional wisdom holds that if you want to maximize your cumulative lifetime benefits, then you should wait as long as possible.
I've debated this point in the past by arguing that most retirees aren't simply walking calculators. In other words, it's possible that maximizing cumulative lifetime benefits isn't actually the goal of the average retiree. But even assuming that it is, how big of a difference does delaying benefits make?
According to data compiled by the Social Security Administration, a man reaching age 65 today can expect to live, on average, until age 84.3. And a 65-year-old woman can expect to live, on average, until age 86.6. Take an average of these, and you get 85.5 years old.
Here's how the age at which you claim Social Security benefits can affect your monthly and lifetime benefits:
This makes taking benefits early look less attractive. By taking benefits at 62 as opposed to 66, the average Social Security beneficiary living to the age of 85.5 years old will get $29,115 less in cumulative lifetime benefits than the person who applies for benefits at 66. And compared with someone who waited until 70, that person gets $44,022 less.
But while this seems like a clear-cut case for waiting, it's critical to keep a few things in mind. First, you're not losing out on a lump sum of $29,115. When you spread it out over the entire 282 months, it equates to a difference of $103 a month -- not an insubstantial amount, but hardly a life-changing sum for most retirees.
Additionally, there are intangible benefits associated with taking benefits early. By doing so, for instance, you may be able to retire sooner and therefore extricate yourself from a physically or emotionally demanding work environment.
Finally, assuming you leave the workforce at 62, taking benefits sooner rather than later may reduce the amount of money you have to withdraw from your retirement account. This will allow those retirement funds to keep growing for longer and thereby preserve a larger share of your estate for your children or grandchildren.
At the end of the day, of course, the decision of when to apply for Social Security benefits is a highly personal one. Only you can decide when the best time is. But if you do choose to take benefits early, you shouldn't regret the decision, as it may well end up being smart for both personal and financial reasons.
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