31% of women and 27% of men tapped into Social Security at age 62.

FIDELITY VIEWPOINTS – 07/28/2020 7 MIN READ

You can start collecting your Social Security retirement benefits at any age from 62 to 70, and when you do so affects how big the checks will be. Start earlier, and you’ll receive smaller checks; delay, and you’ll receive bigger ones.

Key takeaways

• If you claim Social Security at age 62, rather than wait until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits.
• For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit. So, if you can afford it, waiting could be the better option.
• Health status, longevity, and retirement lifestyle are 3 variables that can play a role in your decision when to claim your Social Security benefits.
• After you reach full retirement age, you have the option of temporarily suspending your benefits. During a suspension you can rack up delayed retirement credits, which will increase your eventual payments.

When it comes to Social Security, it is tempting to take benefits as soon as you’re eligible at age 62. In 2018, 31% of women and 27% of men tapped into Social Security at age 62. After all, these men and women have been paying into the system for all of their working life, and they’re ready to receive their benefits (guaranteed monthly income).

Health status, longevity, and retirement lifestyle

Health status, longevity, and retirement lifestyle are 3 key factors that can play a role in your decision when to claim your Social Security benefits. No one can predict the true impact of these variables, but you can rely on the simple fact that if you claim early versus later, you will likely have lower benefits from Social Security to help fund your retirement over the next 20-30+ years.

The earliest age you can sign up for Social Security is 62, and if you go that route, you’ll permanently shrink your monthly benefit by 25% to 30%, depending on your full retirement age. But in spite of that, it still may pays to sign up for benefits at 62.

One of the best reasons to take Social Security at 62 is if you’ve got a serious illness or chronic medical conditions. As with all retirement planning, you’re acting like an amateur actuary, predicting your own life expectancy to determine how long you’ll need your money to last.

Research shows that the more chronic conditions you have, the shorter your lifespan is likely to be. A 2014 study by researchers at Johns Hopkins University showed that a 67-year-old individual with no chronic conditions will live on average 22.6 years (almost to 90) but that a person of that age with five chronic conditions will live on average 7.7 fewer years than the healthy 67-year-old.

Those chronic conditions included heart disease, cancer, chronic obstructive pulmonary disease, stroke and Alzheimer’s disease. Other common chronic illnesses, according to the Chronic Conditions Data Warehouse, which uses data from Medicare and Medicaid, include hypertension, arthritis, diabetes and kidney disease.

You’ve saved enough that filing early doesn’t matter

If you have more than enough money in your IRA or 401(k) to live comfortably throughout retirement, filing at 62 may not hurt you financially. And, you should consider taking your money and use it to enjoy the early part of your later years. Your benefits could make it possible to travel or do the many things you’ve always dreamed of doing. If claiming Social Security early won’t hurt you in the long run, why not go for it.

Investing your benefits

With investing, there are no guarantees, but if you’re a seasoned investor and are confident in your ability to make a lot of money by putting your Social Security benefits to work, then claiming them at 62 could be a good idea.

Working during retirement

Working during retirement could raise your provisional income, and the higher that income, the more likely you are to have your Social Security benefits taxed. Provisional income is what’s used to determine whether your Social Security benefits will be subject to federal taxes. It’s calculated by taking all of your non-Social Security income and then adding in 50% of your annual benefits. If that total falls between $25,000 and $34,000 and you’re a single tax filer, you could be taxed at the federal level on up to 50% of your Social Security benefits. If it exceeds $34,000, up to 85% of your benefits could be taxed.

The average amount spent in retirement by Americans 65-74 is $55,000 a year. The average Social Security check is $14,000 a year. Only 23 percent of boomers ages 56-61 expect to receive income from a private company pension plan, and only 38 percent of older boomers expect a pension. As for personal savings, most boomers have not saved nearly enough and 45% of boomers have zero savings for retirement.

Change your mind

If you develop filer’s remorse, Social Security gives you 12 months from the date you applied for retirement benefits to change your mind and cancel that initial claim. You’ll have to repay what Social Security has already paid you (and what it has paid your spouse and kids, if they’re collecting family benefits on your record), but this way you can refile later at full retirement age and get your full benefit.

There is one circumstance in which Social Security raises your payment at full retirement age, although probably not to 100 percent of your full benefit. That’s if they withheld some of your benefits during early retirement because you had work income that exceeded Social Security’s earnings limit. In this case, they recalculate your benefit at full retirement age to help you recoup those losses

You Have Minor Children

If you have children, eligible grandchildren, or even a spouse providing care for these children at home, these family members may be eligible for a benefit. Just know you will have to file first before they can receive it!

There’s a rule that states that before benefits can be paid to anyone off of your work record, you have to be receiving benefits. That means filing early could make more sense than waiting.

When combined with your benefits, the benefits to children and your eligible spouse can be up to 180% of your full retirement age benefit. If you have children at home that meet the criteria for eligibility, that’s an obvious reason to consider filing early.

Let’s look at an example to illustrate this.

Say you’re 62 and your wife is 50. You have two children, ages 13 and 11. Thanks to good savings habits throughout your working career, you don’t need Social Security income and can be flexible when you file.

Take into account the benefits paid to your children.

While your children would be eligible for benefits based upon your retirement, the kids cannot get benefits until you file. That means your family would able to collect thousands of dollars more in lifetime benefits if you file early and turn on the benefits for your kids.

File and suspend

Lawmakers made changes to benefits available to Social Security participants who waited until full retirement age to claim benefits. Among them were the repeal of the restricted application or file-as-a-spouse-first strategy and the file-and-suspend strategy. Under a restricted application, those who reached full retirement age could elect to claim only spousal benefits, leaving their own retirement benefits untouched. Similarly, using file and suspend, someone at full retirement age or older could file for benefits but immediately suspend them and still allow a spouse to claim spousal benefits.

As a result of these legal changes, there’s no longer as much incentive for married couples to wait until full retirement age — currently age 66 — to claim their benefits. The thousands of dollars that these couples will no longer be eligible to receive could be enough to push the balance toward claiming earlier rather than waiting.

When to claim Social Security is a tough decision that involves plenty of variables. But even though many financial planners urge their clients to think twice before claiming benefits at the earliest possible age, there are situations where it makes more sense to go ahead and take Social Security at 62 rather than waiting.

References:

1. https://www.fidelity.com/viewpoints/retirement/social-security-at-62#:~:text=If%20you%20start%20taking%20Social%20Security%20at%20age,FRA.%20Remember%2C%20FRA%20is%20no%20longer%20age%2065.
2. https://www.fool.com/retirement/2020/10/08/why-working-during-retirement-could-hurt-you-from/
3. https://www.fool.com/retirement/2020/09/07/3-great-reasons-to-take-social-security-benefits-a/