Why I've Decided to Wait: Early Social Security Benefits?

Do you know that 45% of retired workers file for early Social Security benefits at age 62? Do you also know that the amount that their benefits are reduced depends upon what year they were born in (refer to chart)? For example, my monthly benefit would be reduced by 25% if I collected at age 62.

The question for us all is: collect at 62 or wait?

It so happens that in many cases, it makes perfect sense to start collecting sooner rather than later. Here’s why.

  • 50% of people over 65 rely on their Social Security for over 50% of their income.
  • Life expectancy. Some people have health conditions that may shorten their life expectancy. So starting benefits as soon as possible is the best strategy to maximize their total Social Security payout. (Click here to access Social Security’s Life Expectancy Calculator.)
  • Some people just want to increase their income now – perhaps to fund a project, make a purchase or to increase their savings. Taking control of your Social Security when you want to is a valid reason to take early benefits.

Now on the flip side, here’s the wrong reason to start taking early Social Security benefits. You do not understand nor have taken the time to assess your options and their consequences so you just default or assume that you should start at 62.

Here are a couple of simple examples to illustrate some of what goes into making this decision. Let’s assume that I was born in 1954 which makes my full retirement age 66. Assume that my monthly benefit amount at full retirement age (also referred to as Primary Insurance Amount) is $1,300 which is the average for retired individuals. At age 62, my monthly benefit would be reduced by 25%. (To keep it straightforward, I am not going to factor in cost of living increases, taxes, investments or the effect of additional earnings).

So at age 62 my benefit will be $975 ($1,300 X .75). I will collect $46,800 from age 62 to 66 (48 months X $975). The difference between my full benefit and early benefit is $325 ($1,300 – $975). It will take 144 months or 12 years to recoup the $46,800 ($46,800 / $325). Or in other words, I will be “ahead” until I reach age 78.

Not a bad scenario! Never-the-less, I plan to wait before collecting my benefits. Here’s my reasoning.

  • When we did our pre-retirement planning, we factored out Social Security. So we retired reasonably certain that we could afford to retire without having to rely on early Social Security benefits.
  • Being in good health, I’ve decided to “gamble” on living past the age of recoupment as calculated in the examples.
  • Because I retired early, the calculation of my benefits includes over 5 years of $0 earnings which depresses my benefit. However, I can recover the benefit amount sacrificed (and more) by delaying the start of my benefits. For each month past my full retirement age, my monthly benefit will be increased by 2/3 of 1% (or 8% per year).
  • By waiting to file until I have reached (or passed) my full retirement age before filing, CeCe will be able to maximize the collection of spousal benefits under my record while at the same time earning the maximum amount of Delayed Retirement Credits for her own retirement benefit. To read more about our strategy, Click Here.

Here’s how the math works out for my approach. By waiting until age 70 to file for benefits, my monthly benefit will be increased by 32%, to $1,716. The amount that I will not collect between age 62 and 70 is $93,600 ($975 X 96 months). At age 70 my benefit will be $741 greater than at 62 ($1,716 – $975). It will take me 126 months (or 10 years and 5 months) to recoup the $93,600 that I did not take from 62 – 70 ($93,600 / 741 = 126 months). In other words, I will have to live past 80 years 5 months to come out ahead! It’s a choice that I am comfortable making.

Don’t be intimidated or put off by the complexity of Social Security. It behooves you to understand how Social Security works and to come up with a filing strategy that works for your situation. There are two great places to start your investigation: socialsecurity.gov or visit your local Social Security office!

Did you know that I started my career as a Social Security Claims Rep in Houston TX? I was a CR for over 6 years. It’s amazing how much Social Security has changed, and at the same time how little has changed!

Note: the information contained in this article is not offered as advice or guidance. It’s purpose is illustrative – not instructive or prescriptive. As always, consider seeking professional advice when it comes to your financial decisions.

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2 Responses

  1. Dot says:

    The other consideration where both spouses have high income careers is the family maximum allowed benefit. There is a maximum that a family can obtain from social security. That affected our decision to have husband start collecting at 62 and I will wait till 70. That should bring us just a few $’s shy of the family maximum allowed.

  2. Chris Constantine says:

    Another consideration for married couples who have a larger age gap is that the younger spouse may collect a higher total by starting at age 62 because they are more likely to “inherit” a larger SS payment.

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