As you near retirement, you face a key decision: when to take your Social Security benefit.
The prevailing wisdom is to wait until age 70 if possible. That's because even though most people can start receiving benefits as early as age 62, it pays to delay.
Waiting until 70 enables you to get the largest benefit possible — for the rest of your life. Financial pros often recommend that you delay claiming benefits until age 70. That is, as long as you have sufficient assets to cover your living expenses through your 60s. And, as long as you expect to live into your mid-80s and beyond.
But for savvy investors, bucking the conventional wisdom can sometimes pay off.
Reasons To Take Social Security Benefits Early
"Most analyses of this question (of when to apply for Social Security) neglect to include the investment benefit of taking the benefit early," said Howard Erman, a certified financial planner in Seal Beach, Calif.
Like many financial advisors, Erman uses software to run projections that compare annual benefit amounts based on various assumptions. The goal is to help clients determine when they might come out ahead under different scenarios.
Armed with your break-even age — when cumulative Social Security benefits even out — you can decide the best timing.
Erman often highlights the advantages of taking Social Security at full retirement age (between 66 and 67 for many people). As long as people invest all or most of the benefits in a prudent, diversified manner — and let it grow for years to come — they can build a bigger nest egg than if they waited until 70 to start receiving benefits.
"It usually takes 12 to 20 years to get even," Erman said. If they already have sufficient retirement assets, "by taking benefits at an earlier age, they can use the additional income to travel or enjoy whatever that money can buy."
Balancing Longevity And Inheritance Goals
Healthy retirees may hope to live into their 90s. But Erman warns that if health issues arise, those who waited until 70 to maximize their benefit will collect that money at an advanced age when they are infirm and least able to savor it.
"Unless maximizing the inheritance is the primary goal, which is true only for a minority of clients, then the benefit should be taken early, well before age 70," he said.
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For married couples where one spouse is much younger, delaying until 70 can make sense, Erman adds. If the older spouse, who is also the higher-earner, dies first, the surviving spouse could receive a higher benefit for life.
Taking your Social Security benefit well before 70 — and investing it — carries risk. The strategy worked for many retirees during the past 15 years, when markets rose. But there's no guarantee the next decade or two will produce average or above-average returns.
"If you're bullish on the market and give up the delayed credits, you can try to outgrow the difference you'd receive by waiting," said Michael Carbone, a certified financial planner in Chelmsford, Mass. "But if you start taking benefits early when a recession is about to start and subsequent investment returns don't work out how you expect," bad timing can sabotage your strategy.
Pros And Cons Of When To Take Social Security Early
For Carbone, the current climate heightens the risk. Given high stock valuations and geopolitical turmoil, the odds of market volatility increase.
Some investors deem themselves smarter than their peers. They are sure they can beat the 8% added benefit for each full year they delay Social Security beyond their full retirement age.
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"It's possible to do better," said Sita Slavov, professor of public policy at George Mason University. "It's also possible to do a lot worse."
Fear that Social Security could run out of money is the No. 1 reason for claiming early, according to a 2023 survey from Schroders, an asset management firm.
About 44% of respondents said their doubts about the system's solvency drove them to take Social Security benefits sooner.
Many experts downplay such worries. While some structural reforms are likely over the long haul, the youngest baby boomers are probably safe.
"For those 55 and over, no changes in benefits will occur," Slavov said. "If you're under 55, there may be changes."
Will Social Security COLA Keep Up With Inflation?
Social Security benefits are designed to keep pace with inflation thanks to cost-of-living adjustments (COLAs). Benefits increased by 3.2% for 2024. Slavov calls Social Security "an inflation-indexed life annuity."
"Part of what makes delaying so compelling is the higher base for future COLAs," Carbone said. "One of the proposals put forth by the (Social Security) trustees is to reduce future COLAs. Although I don't feel this is a highly compelling argument, it's worth thinking about when weighing the decision."
Another questionable case for taking Social Security early is the belief "I've been paying in my whole working life and I want to get it for as long as I can," says Mitch Anthony, author of "The New Retirementality." While it's understandable to want to get your hands on the money as soon as possible, that alone isn't a reason to act.
Waiting to retire until your full retirement age — even if you don't wait for your 70th birthday — can add tens of thousands of dollars a year to your income. As people live longer and healthier lives, this additional money can expand your lifestyle choices into your 90s.
On the other hand, you may have chronic health conditions or multiple risk factors that lead you to think you won't live to a ripe old age. If so, it's tempting to use that rationale to take your Social Security benefit early and spend it while you can.
More: Learn How To Save On Fees With DIY Ideas. And Read What Empower CEO Ed Murphy Says About Using AI For Retirement Planning.
Prognosis For You And Your Money
But predicting your life expectancy is a tricky business.
"You might live longer than you think," said Martha Shedden, co-founder and president of the National Association of Registered Social Security Analysts. "You might not die on time. A lot of people are really surprised" at how they outlast their expected expiration date.
Rather than deciding when to apply for Social Security benefits based on a hunch of when you'll die, seek input from each of your medical providers. Enlist your primary-care physician as well as your cardiologist, pulmonologist and other specialists.
"In a candid discussion with your doctor, ask, 'What's my prognosis for life expectancy?'" said Mark J. Orr, a certified financial planner in Alpharetta, Ga. "That's better than saying, 'My parents died young from cancer. I will too.' Don't rely on that."
If you're eager to take your Social Security benefit at 62 and start investing the funds right away, think twice if you're still working. You can collect Social Security while you work, but you'll pay a price.
"If you're still working, your benefit might be lower because you're subject to the earnings test," said Orr, author of "Social Security Income Planning." That's because people who are younger than full retirement age and earn more than the annual earnings limit receive a reduced benefit.
