When to Claim Social Security: 62, 67, or 70?

For most Americans, the decision of when to begin receiving Social Security benefits is a pivotal one. While benefits become available as early as age 62, claiming then isn’t necessarily the optimal strategy. Understanding the trade-offs between claiming early, at full retirement age, or delaying until age 70 is crucial for maximizing lifetime benefits.

The Allure of Claiming at 62

Social Security is most popularly claimed at age 62 as reported by USA Today. The immediate availability of funds can be particularly appealing for individuals who are no longer working and have limited income. As Romina Boccia, director of budget and entitlement policy at the Cato Institute, notes, claiming early may be sensible “if their alternative is going into debt.”

However, claiming at 62 results in a significant reduction in monthly benefits. For those born in 1960 or later, the benefit at age 62 is 30% smaller than the full benefit according to AARP. A scholarly paper found that claiming before age 70 can result in a loss of $182,370 in potential Social Security income as cited in USA Today.

Full Retirement Age and Beyond

Full retirement age (FRA) varies depending on your year of birth. For most, it’s now 67 as AARP explains. Claiming at FRA entitles you to 100% of your calculated benefit.

Delaying benefits beyond FRA increases your monthly payment by 8% per year, up to age 70. This can result in a substantial increase – approximately 76% higher than the benefit received at age 62 according to calculations by Kotlikoff.

Longevity and the Break-Even Point

The optimal claiming age is heavily influenced by life expectancy. The “break-even” point – the age at which the cumulative benefits received from claiming at 70 surpass those from claiming earlier – is around age 80 as analyzed by The Motley Fool. If you anticipate living beyond 80, delaying benefits is generally the more financially advantageous strategy.

It’s vital to note that life expectancy tends to increase with age. By the time you reach 62, you can reasonably expect to live into your 80s experts suggest. However, individuals with health conditions or a family history of shorter lifespans may have a different calculation.

Concerns About Social Security Solvency

The long-term solvency of Social Security is a valid concern for many. The program faces a projected shortfall as early as 2032 USA Today reports. This has led some to claim benefits early out of fear that future benefits may be reduced. However, experts generally believe that Congress will take action to address the shortfall, likely through a combination of tax increases and benefit adjustments, and that any cuts would likely affect younger workers rather than those nearing or in retirement according to Robert Brokamp of The Motley Fool.

Investing Early Benefits: A Risky Proposition?

Some individuals consider claiming benefits early and investing the funds. While potentially lucrative, this strategy carries risk. If you were to earn a 5% annual return on your Social Security dollars, you might be better off claiming at 62, but this advantage diminishes after age 90 as analyzed by The Motley Fool. Economists generally advise prioritizing the security of Social Security benefits over potentially higher, but less certain, investment returns as Monique Morrissey of the Economic Policy Institute suggests.

Key Takeaways

• Claiming at 62 provides immediate income but results in a significantly reduced monthly benefit.
• Delaying benefits until age 70 maximizes your monthly payment, but requires a longer lifespan to realize the full financial benefit.
• Life expectancy is a crucial factor in determining the optimal claiming age.
• Concerns about Social Security solvency should not necessarily drive an early claiming decision.
• Investing early benefits is a risky strategy that may not outperform the guaranteed returns of delayed benefits.