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Friday, April 6, 2018

Pros and cons of taking Social Security at 62

Last week's blog explored the 10 reasons why today's retirees are relying so heavily on Social Security. Today we will explore the pros and cons of taking Social Security at age 62.  Today's topic comes from an article authored by Christy Bieber for The Motley Fool. Here is the link to the full article: https://www.fool.com/retirement/2018/03/19/pros-and-cons-of-taking-social-security-at-62.aspx

The earliest age you can claim Social Security benefits is 62, and it is also the most popular age to claim benefits, according to the Center for Retirement Research. Here are the pros and cons to consider when thinking about claiming at age 62.

Advantages of claiming Social Security at 62:

1. You can keep your savings invested for longer. If you want to retire early, you'll need to start drawing from your savings or collecting Social Security benefits, or both. Claiming Social Security at age 62 can give you the money to live on until you're ready to begin withdrawals on your savings accounts, which will allow that nest egg to continue to grow.

2. Claiming early can make early retirement possible. For many people with too little savings, Social Security income is necessary to live on. If you cannot find work and you are age 62, you may have no choice but to start claiming Social Security so you can support yourself.

3. You can enjoy the money while you are still healthy. One in three retirees responding to a Nationwide survey said health issues were interfering with their retirement. If you want to claim Social Security benefits while you're young and healthy so you have the money to travel while you can, claiming at 62 can make sense, as long as you have a plan in place to pay for healthcare needs.

4. You can claim before the value of the benefit erodes. Social Security benefits don't really keep pace with rising costs of living. Social security benefit increases often don't give seniors much more buying power, since extra money is lost to higher Medicare premiums, as well as increasing medication and housing costs.

5. You won't die before you can break even after delaying benefits. If you delay Social Security benefits, you'll get a higher monthly income when you finally do claim, but you will have months or years when you received nothing at all. It can take a long time to break even for missing benefits. This can be as much as 11.7 years if you retire at age 62, based on calculations with average benefits. There's no guarantee you'll live longer than 78.7 years and if you don't, you'll have missed out on money by waiting to claim.

Cons of claiming Social Security at 62:

1. You'll get a significantly reduced benefit. Your standard benefit is based on your full retirement age which is 67 if you were born after 1960. If you claim early, your benefit is reduced by 5/9 of 1%, but if you claim more than 36 months early, which you will if you start getting Social Security at 62, you face and additional 5/12 of 1% monthly reduction. This means if you would have received $1,404 at age 67, you will instead receive just $983 per month.

2. Social Security benefits provide guaranteed income for life. Your retirement savings do not provide any guarantee that your savings will last. If you've claimed benefits early, you're guaranteed Social Security retirement income will be far lower than it otherwise might be, which could leave you're struggling if you end up needing to rely heavily on Social Security to provide some or all of your income.

Ultimately, every person needs to decide when the optimum time is to claim Social Security benefits. What makes sense to some may not make sense to others.

Jon


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