Many of us are looking forward to collecting monthly payments from Social Security one day, but few are spending much time thinking about just when we'll start doing so. You can claim your benefits as early as age 62 and as late as age 70, and when you choose to start can make a big difference in your retirement.
The age at which most people start collecting Social Security is 62, the earliest age at which they can do so. Sometimes they do so because they have little choice -- perhaps due to a job loss -- but other times it's because it makes sense for them. Here are three reasons why you might want to claim Social Security early.
The bigger delayed checks may not be worth it
Perhaps the main reason why many people choose to start collecting Social Security late is because the longer you wait (until age 70), the bigger your checks will be. For every year beyond your full retirement age that you delay, your benefits will increase in value by about 8% -- up to age 70. So delay from 67 to 70 and you can make your checks 24% bigger. That's pretty powerful. If you were expecting to collect $2,000 per month ($24,000 per year), you can instead receive $2,480 per month (or nearly $30,000 annually).
That can seem very compelling, but hold on. The Social Security Administration has explained that, "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." After all, if you delay starting to collect from age 67 to age 70, you will miss out on three years' worth of payments (albeit smaller ones) -- that's 36 payments.
Delaying starting to collect can make sense in some cases, of course. Perhaps you're perfectly happy working and want to work until your late 60s or age 70 or beyond. Perhaps your family features very long life spans, in which case collecting bigger checks for a longer-than-average time can be worth it.
Just don't be too quick to delay, because starting to collect the money due early instead of on time or late may make little difference.
Claiming Social Security early may help you retire early
If your family tree is full of people who lived shorter-than-average lives, claiming your benefits early can be very smart. You might as well enjoy the money while you're still around -- and if you beat the odds and live a long life, you'll still be collecting benefits.
Few of us have a good idea of just how long we'll live, so if you can retire early, you'll give yourself the best chance of being able to enjoy a lot of years without work. Claiming benefits early can help with that.
Not everyone will be able to afford to, but many can. You'll just have to run the numbers for yourself and your situation, to see what makes sense. Many of us have "full" retirement ages (at which we can receive our full benefits) of 66 or 67. Claiming your benefits before that age will reduce them by 6.67% per year for the first three years early, and 5% per year beyond that. (Delaying collecting beyond your full retirement age results in a permanent benefit increase of 8% per year until age 70.)
Early retirees are often in a better position to enjoy their money more, being younger, healthier, and more able to travel, enjoy recreation, and so on.
The file-and-suspend strategy is gone
Another reason to consider starting to collect your benefits at age 62 is that one strategy that used to reward those who waited until full retirement age has now disappeared. The once-popular file-and-suspend strategy for couples is no longer available as of May. With it, one spouse would file to begin collecting Social Security benefits but would then suspend the benefits, so that you wouldn't receive them yet, but they would still grow. Meanwhile, since you did initially file to begin receiving them, your spouse could collect spousal benefits based on your earnings. This was a strategy that let many couples have their cake and eat it, too, and was a reason for some to file for their benefits early.
That loophole was recently closed, though, so if you've been thinking that it's a good reason to wait longer before claiming benefits, think again.
There are severalvalid reasons to consider collecting Social Security as early as you can. Learn a little more about Social Security strategies and see what timing makes the most sense for you.