Considering taking Social Security in 2022?  Consider this first.

In October, the Social Security Administration (SSA) confirmed the cost-of-living adjustment (COLA) will increase by 5.9% in January.  With a 5.9% increase to their Social Security benefit, many are wondering if they should start collecting Social Security now.  Usually, the earliest you can take Social Security is age 62.  But just because you can doesn’t mean you should. We get asked about the right time to collect Social Security quite often, and we’re confident in our standard reply of: It depends.  We also realize that isn’t enough information to make it a super helpful response. 

Instead of providing a definitive answer, we can provide some helpful considerations:

  1. Collecting Social Security at 62 lowers your monthly benefit.
  2. Many people risk outliving their saving and cannot afford a reduced Social Security benefit.
  3. A decision to collect early can negatively impact your Spouse’s benefit if you die first.

When your 62nd birthday approaches, starting to collect your hard-earned Social Security benefit may sound appealing. We get it.  There are few guarantees in life and the idea of losing out on money you earned can be uncomfortable. As with many things in life, the decision isn’t that simple.  We encourage you to carefully consider if this is in your best interest before making the decision to start collecting Social Security at 62. 

Here are three reasons why you may want to pump the breaks:

  1. Larger payment.

The downside of taking Social Security early (at age 62) is that you will receive a reduced amount, approximately 75%, of your full benefit amount. This reduction is permanent. Also, if you continue to work, you are limited in the amount of annual income you can receive until you reach your normal retirement age. For every $2 you go over the limit, $1 is deducted from your benefit. Waiting until you're 70 yields a benefit that's about 77% higher compared to claiming at age 62. That's because you earn 8% delayed retirement credits for every year you wait past your full retirement age until your benefit maxes out at age 70. If you're worried about soaring inflation, think twice before starting Social Security at 62, because as we discussed earlier, the lower payment is locked in for life.

  1. Longevity = larger lifetime benefit.

Stretching your money over several decades can be difficult, particularly when you take a reduced Social Security benefit. If you have any doubt about whether your retirement funds will be adequate to support you for 20 to 30 years or more, holding out past your 62nd birthday for Social Security is a wise choice. Unfortunately, all too often people underestimate their life expectancy. Because benefits continue for life, the total amount you receive is dependent on how long you live. As delaying the onset of benefit is really the best way to maximize Social Security, we encourage clients to plan for longevity in most cases.

  1. You love your spouse.  

Whether you love your spouse or not, if you are married you need to consider the impact of claiming Social Security on your spouse. If you are the higher earner and you predecease your spouse, they may be able to get larger monthly checks by switching to survivor benefits. They can receive between 71.5% and 100% of your benefit amount, depending on their age when they claim. If you die before you take Social Security, their benefit will be based on your primary insurance amount. (That's the amount you would have received at full retirement age.) But if you die after claiming, their benefit is based on the amount you were receiving when you died. In that case, claiming at 62 would lower their benefit also. 

Should you ever take Social Security at age 62? 

For some, taking Social Security at age 62 is the best decision, and here’s why:

  • You are in poor health. If your life expectancy is shorter due to a serious health condition, you may want to take Social Security as early as possible to receive the maximum benefit. 
  • You are in a tight financial situation. Obviously, if you need the money to make ends meet, taking the income now may be the right decision. Starting early makes sense if delaying would jeopardize your ability to provide for your basic needs.
  • You will never need the money. If you have plenty of income and little risk of outliving your savings, taking Social Security at 62 is just fine. 
  • It causes you stress to wait until your normal retirement age.  Although it might not result in the largest benefit, you can afford to make the decision for your own peace of mind.

Regardless of what age you plan to start Social Security, it is important that you plan for retirement as early as possible. If you are 5-10 years away from retirement, it’s time to have a serious discussion about your future. Create a solid retirement plan so you don’t have to depend on those Social Security checks. Contact us today to get started.