Does it Pay to Take Social Security Early?

By Jim Miller

Most financial planners agree that waiting to take your Social Security retirement benefits is a smart financial move. Why? Because each month you defer, from your 62nd birthday to your 70th, your monthly benefits grow. That adds up to around 6 to 8 percent higher payments for every year you delay.

Yet despite the financial incentive to wait, most people (58 percent of men and 64 percent of women) claim their benefits before full retirement age, which is currently 66 for those born between 1943 and 1954.

But speeding up the clock isn’t always a bad idea. Here are some scenarios where it may make sense for you to collect early.

You need the money:

If you’re retired and don’t have enough savings or a pension to cover your living expenses, you’ll probably have to start early. But if you decide to work, be aware of the earnings test.

If you claim Social Security benefits before full retirement age (and you don’t reach 66 this year), you’ll forfeit $1 for every $2 you earn over the earnings limit of $15,720 in 2016. It usually doesn’t make sense to take benefits early if you’re working, unless your income is below the earnings limit.

You have poor health:

Having a serious medical problem that is likely to shorten your life is another reason to start your benefits sooner rather than later.

Consider the “breakeven point” — the age you need to reach to come out ahead by waiting to claim Social Security — is 78 for someone who claims at 62 versus waiting to 66. If you don’t anticipate making it to 78, go ahead and claim early.

However, if you are married or have other dependents at home that depend on your benefit, you may want to hold off because starting early will reduce their survivor’s benefits.

You’re a lower-earning spouse:

If you’re married and your lifetime earnings are much lower than your spouse’s, you could take your benefit early but your higher-earning spouse should delay. This lets you increase your household income now, while the higher-earning spouse’s benefit grows, therefore increasing the survivor benefit.

This strategy is best suited when a lower-earning wife is three to six years younger than her husband and her earnings are 30 to 40 percent of his. She should claim at 62 and he should claim at full retirement age, or better yet wait to age 69 or 70. Because the husband is likely to die earlier, the wife’s reduced benefit will be temporary and she will then qualify for the higher survivor benefit.

Skeptical of Social Security:

Many people take their retirement benefits early because they fear Social Security will go bankrupt, but this not a good reason to start collecting early.

While it is true that the Social Security trust fund will become insolvent around 2033 — 17 years from now — if no changes are made, that doesn’t mean there will be no more money for benefits. It means that the fund is no longer taking in enough money to cover all promised benefits. Thus payment checks are likely to end up shrinking by about 25 percent.

But, if the thought of losing out on your benefits keeps you up at night, then it may be better to start claiming early instead of holding off for more later.

To see how much your benefits will be affected by your claiming age, use the Consumer Financial Protection Bureau’s new planning for retirement tool at consumerfinance.gov/retirement/before-you-claim.