The vast majority of Americans take Social Security before they reach full retirement age. By doing so, they agree to accept smaller Social Security payments for the rest of their lives. Yet many policymakers think that people would be better served by waiting, raising the question of whether those reduced payments should actually deter you from making early Social Security claims.
To provide multiple views on this contentious issue, we asked three Motley Fool contributors to provide their perspectives on the pros and cons of claiming Social Security at different times. Take a look at what they have to say and see which one you agree with the most.
Dan Dzombak: The lower benefits you receive after taking Social Security early should make you think twice before taking benefits before your full retirement age.
By taking benefits at 62 you get 4 extra years of payments compared to someone who claims at their full retirement age of 66. In terms of total social security benefits received, those who claim early are ahead versus those who claim at their full retirement age until age 78, which is the breakeven point for ages 62 vs. 66. After that point, those who claimed at age 66 will continue to receive checks from the government that are 33% larger, and will quickly see their total Social Security benefits move thousands of dollars ahead of those who did not wait.
Age 78 might seem like a long time to wait for the average 62 year old. But the average 62 year old is expected to live another 20 years for males, to age 82, and another 22 years, to age 84, for females. In fact, for people who make it to age 62, 65% of males and 75% of females will make it to age 78. So 65% of males and 75% of females are better off taking Social Security benefits at 66.
Think twice before taking Social Security benefits early.
Dan Caplinger: Social Security makes lower monthly payments to those who take benefits at their earliest opportunity, trying to give people an incentive to wait longer before starting to receive Social Security. Yet the majority of retirees take Social Security before reaching the full retirement age of 66, and only a small fraction delay beyond full retirement age to the maximum benefit age of 70.
It's true that Social Security adjusts benefit amounts to reflect the fact that taking payments later means getting fewer checks over the course of your lifetime, and so it's tempting to think that it doesn't really matter. But the consequences not just on your own retirement benefits but also on spousal and survivor benefits if you're married add a more complicated equation to the decision, and typically, it results in more of a bias toward waiting if you want to get the most lifetime benefits from the program.
This doesn't mean that there aren't sometimes compelling reasons, both personal and financial, to take Social Security early. Yet by starting from the position that you should aim at waiting unless you have to take benefits early, you'll be more likely to make a decision that turns out well for you and your family.
Brian Stoffel: I can't disagree with anything either Dan is saying. Most people who live to be 62 will be around long enough for it to make the most financial sense to put off claiming Social Security until at least the retirement age of 66.
But it's important to remember that your ultimate goal should be to enjoy retirement -- not necessarily maximize your Social Security payments. I haven't heard of many people on their deathbed saying, "I wish I would've waited to claim Social Security."
If you've been a diligent saver and investor for your entire working life, you may not need a super-charged Social Security payment to live a comfortable retirement.
The key here is understanding the 4% rule and using it to your advantage. If the payments you'll get from Social Security when combined with a 4% withdrawal from your retirement savings are enough for you to live comfortably, then you should strongly consider retiring as soon as you feel like -- regardless of where your Social Security benefits will be.