The conventional wisdom about waiting to draw your Social Security is typified on this Motley Fool web page: “You can claim benefits anytime starting at the age of 62, but waiting to claim benefits increases your income…’
Well, not so fast, folks. What most people don’t realize is that according to this “2-Minute Money Manager” piece by Stacy Johnson, the way Social Security benefits works is that you should receive “exactly the same amount of money (at a lower rate of payment) by taking a lower benefit at age 62, or an enhanced benefit at age 70.”
You see, it’s all based on average life expectancy. You are not, repeat not, “getting penalized by taking it early, and you’re not getting rewarded by taking it late.”
Now that we have that cleared up, let’s go over some disadvantages of opting for claiming benefits at age 62:
- If you start receiving that check before your full retirement age of 65 to 67, depending on your year of birth, and you still work, in 2021 plan on losing $1 in Social Security for every $2 you earn over $18,960 until you reach full retirement age, at which time there is no penalty.
- Also, if you retire early, you may end up being “retired but not tired.” If long life is in your genes and you have a good job that you can do well into your upper 60s, you might want to wait until age 70 for the fatter Social Security checks.
That could be you, but what about others who need the money, have health problems, and a family history of shorter life spans?
In that case, the best advice is to start early. Waiting another three to eight years means bigger checks, but you have given up thousands of dollars in the meantime. Sure, you’ll get that all back, but do the math. You might have to live well into your 80s to recoup the checks you could have received during those years.
Want a general idea of your life expectancy given your current age? Log on to the Social Security’s Life Expectancy Calculator. Of course, the estimated total years that the calculator says you have remaining omit a wide number of factors including your current health and family history.
You can also get a rough estimate of what your Social Security check will be by clicking on the links in AARP’s Social Security Resource Center page, “How Much Will I get From Social Security?”
So, to recap, you don’t lose Social Security money if you retire early. You just receive lower payments, which can even out if you’re fortunate enough to live that long.
Also, you just might be one of those fortunate people who have great retirement benefits from other sources, and delaying Social security may not be right for you. Social Security was never meant to be the sole source of comfortable retirement, but that extra $20,000 or so each year can be a nice cushion against the unexpected.