Is It Better To Take Social Security At 62 or 67?

Introduction

Deciding when to start receiving Social Security benefits can be a significant decision that can impact your financial well-being in retirement.

Many individuals are faced with the dilemma of whether it is better to start receiving benefits at the earliest possible age of 62 or wait until full retirement age, which is typically 67.

In this comprehensive guide, I will explore the pros and cons of taking Social Security at 62 versus 67 to help you make an informed decision.

My Personal Experience

Before we delve into the details, let me share a bit about my personal experience with Social Security.

I faced the same decision a few years ago when I turned 62.

After carefully weighing my options, considering my financial situation, and consulting with a financial advisor, I made a decision that was best for me.

Now, let’s explore the factors you should consider when deciding when to take Social Security benefits.

How Social Security Benefits are Calculated

First, it’s essential to understand how Social Security benefits are calculated.

Your benefit amount is based on your highest 35 years of earnings, adjusted for inflation.

The Social Security Administration has a formula to determine your primary insurance amount (PIA), which is the amount you are entitled to at full retirement age.

When deciding whether to take Social Security at 62 or 67, several factors come into play.

Let’s break down the pros and cons of each age to help you make an informed decision.

Taking Social Security at 62

Starting Social Security benefits at 62 is the earliest age you can claim them.

Here are some factors to consider:

Pros:

Early access to funds: You can access your Social Security benefits five years earlier, providing you with a financial safety net if you need it.
Health concerns: If you have health issues or a family history of shorter life expectancy, taking benefits early may be advantageous.
Early retirement: If you want to retire early and have other sources of income, starting Social Security at 62 can supplement your finances.

Cons:

Reduced benefits: Your monthly benefit amount will be reduced by up to 30% compared to if you had waited until full retirement age.
Earnings limit: If you continue to work while receiving benefits at 62, your benefits may be reduced if you earn over a certain limit.
Impact on survivor benefits: Starting benefits early can also reduce the survivor benefits available to your spouse if you pass away.

Taking Social Security at 67

Full retirement age is typically 67 for those born in 1960 or later.

Here are some factors to consider when taking benefits at 67:

Pros:

Full benefits: Waiting until 67 to claim Social Security will provide you with your full calculated benefit amount.
Increased benefits: For each year you delay past full retirement age up to age 70, your benefits will increase by a certain percentage.
No earnings limit: Once you reach full retirement age, you can continue working without any reduction in your Social Security benefits

Cons:

Delayed access to funds: Waiting until 67 means forgoing five years of potential benefits, which could impact your financial situation if you need the income.
Health considerations: If your health is declining, waiting until 67 to claim benefits may not be advantageous.
Uncertainty: None of us can predict the future, so waiting to claim benefits means you are taking a risk that you may not live long enough to benefit from the higher monthly payments.

Factors to Consider

When deciding whether to take Social Security at 62 or 67, there are several essential factors to consider:

Financial Stability

Your current financial situation and stability play a crucial role in determining when to start receiving Social Security benefits.

If you need the income to cover essential expenses, starting benefits at 62 may be the right choice.

However, if you have other sources of income and can afford to wait, delaying benefits until 67 can increase your monthly payments.

Health and Life Expectancy

Your health and life expectancy are significant considerations when deciding when to take Social Security benefits.

If you have health concerns or a family history of shorter life expectancy, starting benefits early at 62 may be beneficial.

However, if you are in good health and expect to live a long life, waiting until 67 can maximize your lifetime benefits.

Employment Status

Your employment status also impacts the decision of when to take Social Security benefits. If you plan to continue working past 62, be aware that your benefits may be reduced if you earn over a certain limit. However, once you reach full retirement age at 67, you can work without any reduction in benefits.

Spousal Benefits

If you are married, spousal benefits should be factored into your decision-making process.

Starting benefits early at 62 can have implications for survivor benefits available to your spouse if you pass away.

Consider how your decision will impact your spouse’s financial security in retirement.

Long-Term Financial Goals

Consider your long-term financial goals when deciding when to take Social Security benefits.

If you have other sources of income and can afford to wait, delaying benefits until 67 can result in higher monthly payments and increased financial security in retirement.

Market Conditions

Economic factors and market conditions can also influence your decision.

If you are concerned about economic instability or market volatility, starting benefits early at 62 may provide you with a secure source of income regardless of external financial factors.

Comparing Scenarios: Taking Social Security at 62 vs. 67

To help you visualize the financial impact of taking Social Security at 62 versus 67, let’s compare two scenarios based on a hypothetical individual, Sarah:

Scenario 1: Sarah Takes Social Security at 62

Sarah’s monthly benefit at full retirement age (67): $1,500
Reduction for claiming benefits early: 30%
Sarah’s monthly benefit at 62: $1,050
Total benefits received from 62 to 67: $63,000 ($1,050 x 60 months)
Total benefits received from 67 onwards: $18,000 per year ($1,500 x 12 months)

Scenario 2: Sarah Waits until 67 to Take Social Security

Sarah’s monthly benefit at full retirement age (67): $1,500
Total benefits received from 67 onwards: $18,000 per year ($1,500 x 12 months) In this simplified example, Sarah would break even at age 77 if she waits until 67 to take Social Security benefits. If she lives past 77, waiting until 67 would result in higher lifetime benefits compared to starting benefits at 62.

Frequently Asked Questions

1. What is the earliest age I can start taking Social Security benefits?

You can start taking Social Security benefits as early as age 62.

However, your monthly benefit amount will be reduced compared to if you had waited until full retirement age.

2. How is the monthly benefit amount calculated?

The Social Security Administration calculates your benefit amount based on your highest 35 years of earnings, adjusted for inflation.

Your primary insurance amount (PIA) is the amount you are entitled to at full retirement age.

3. Is it better to take Social Security at 62 or 67 if I plan to continue working?

If you plan to continue working past 62, be aware that your Social Security benefits may be reduced if you earn over a certain limit. However, once you reach full retirement age at 67, you can work without any reduction in benefits.

4. How does my health impact the decision of when to take Social Security benefits?

If you have health concerns or a family history of shorter life expectancy, starting benefits early at 62 may be advantageous.

However, if you are in good health and expect to live a long life, waiting until 67 can maximize your lifetime benefits.

5. What effect does claiming Social Security early have on survivor benefits?

Starting benefits early at 62 can reduce the survivor benefits available to your spouse if you pass away.

Consider how your decision will impact your spouse’s financial security in retirement.

6. Should I consider market conditions when deciding when to take Social Security benefits?

Economic factors and market conditions can influence your decision.

If you are concerned about economic instability or market volatility, starting benefits early at 62 may provide you with a secure source of income regardless of external financial factors.

Conclusion

Deciding when to take Social Security benefits is a significant financial decision that requires careful consideration of various factors.

Whether you choose to start receiving benefits at 62 or wait until 67, weigh the pros and cons, consider your financial situation, health, employment status, and long-term goals.

Consult with a financial advisor to help you make an informed decision that aligns with your unique circumstances.

Remember, the choice between taking Social Security at 62 or 67 ultimately depends on what is best for your financial security and retirement plans.