Social Security is primarily known for its retirement benefits, and given that most people think of 65 as the typical retirement age, you might think that most people would wait that long before taking their Social Security benefits. Yet in actuality, more people claim Social Security benefits at 62, the first opportunity at which one can claim retirement benefits, than at any other age, including nearly half of women and more than 40% of men. That fact raises a simple question: Why do so many people take early benefits? Let's look at some possible reasons below.
Reason 1: Many people can't afford to wait.
It's true that claiming Social Security at 62 means that you'll get 25% less in monthly benefits than if you waited until the full retirement age of 66. However, many people don't have the luxury to wait an extra four years before taking monthly checks from Social Security. Being able to continue working into your 60s is far from a guaranteed proposition for today's older workforce, and layoffs, health problems, or other unforeseen circumstances can force you to give up plans to keep earning income as long as you had hoped. If you don't have enough in savings to bridge the gap between the end of your career and full retirement age, then taking early Social Security benefits at 62 can be the best option you have available to make ends meet.
Reason 2: You don't think you'll live long enough to make back what you lose if you wait.
Taking Social Security at 62 involves a trade-off. You get a larger number of monthly payments over the course of your lifetime, because you start getting those payments earlier than those who wait. However, each payment is smaller than it would be if you waited. If you knew that you were going to live to be 100, then it would typically make sense to wait until age 70 to claim your benefits, because you'd get enough of the larger payments that it would make up for the benefits you missed out on from 62 to 70.
Many people are more pessimistic about their prospects to have a long and healthy retirement. For them, getting while the getting is good is the guiding principle, and that motivates them to take benefits early even with the attendant trade-off involved.
Reason 3: You have children who will only be eligible for payments if you claim early.
Retirees who have children who are under age 18, in high school and age 18 or 19, or disabled are eligible to receive children's benefits. However, those benefits are only available if the worker in question has claimed retirement benefits. In some cases, that will swing the pendulum toward claiming Social Security early.
For instance, take a person who is 62 and has a 14-year-old child who will graduate from high school within four years. If the person waits until age 66, then the child will be 18 and therefore won't get any benefits. However, if the person takes Social Security at age 62, then the 14-year-old child would be able to claim children's benefits under Social Security for several years. That could be enough to shift the balance back toward claiming early.
Reason 4: An outside pension will wipe out your Social Security payments later in your retirement.
A couple of provisions of Social Security law can have an impact on your Social Security payments. If you have a pension from a government job in which you didn't pay into the Social Security payroll tax system, then the Windfall Elimination Provision can reduce your Social Security check by up to $428 per month in 2016, or half what you get from your government pension, whichever is less. Meanwhile, the Government Pension Offset has a similar impact on spousal benefits, reducing your Social Security check by two-thirds of whatever you get from your own pension. In some cases, this can wipe out your Social Security entirely.
Many government pensions give you latitude about when you can take them, and one way of handling them is to claim early Social Security benefits with the full expectation that later on, you'll start receiving your outside pension and will get dramatically decreased or eliminated payments. That way, you at least get some benefit from Social Security without worrying about how integrate with other programs.
Making a smart decision about Social Security can be tough. Given how important the process is, though, it's worth the extra effort in order to make sure that you've made the right decision.
