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Social Security Part 2 of 5 - When Should You Claim Benefits?

alanmendlowitz

Do you love getting paid? Of course you do! That’s why it’s tempting to grab your Social Security benefits as soon as you hit age 62. But here’s the catch: the timing of your claim can mean the difference between just scraping by and truly thriving in retirement.

Let’s break down the pros, cons, and strategies for deciding when to start your benefits.


Option 1: Claiming Early at Age 62

Age 62 is the earliest you can start claiming Social Security. For some, it’s a no-brainer—why wait when you can get money now? But before you hit the “claim” button, consider this: claiming early permanently reduces your monthly benefit by up to 30%.


The Pros:

  • You get money sooner, which can be a lifesaver if you’re out of work or need cash flow.

  • If your family history suggests a shorter life expectancy, claiming early could mean getting more out of the system overall.


The Cons:

  • Your monthly checks will be smaller for life.

  • If you keep working, your benefits may be temporarily reduced due to the earnings test.


Option 2: Full Retirement Age (FRA): The Middle Ground

FRA is the age when you can claim your full, unreduced Social Security benefit. It ranges from 66 to 67, depending on your birth year.


Why It’s a Sweet Spot:

  • No reductions for claiming early.

  • You can still work without worrying about the earnings test once you hit FRA.


Option 3: Delaying Until Age 70

If patience is your virtue, delaying your benefits can pay off big time. For every year you wait past FRA, your benefit grows by 8%, thanks to Delayed Retirement Credits (DRCs).


The Pros:

  • Bigger monthly checks for life.

  • Higher survivor benefits for your spouse if you pass away first.


The Cons:

  • You have to wait—and that can be hard if you need income now.


The Break-Even Analysis

So, how do you know if waiting is worth it? That’s where a break-even analysis comes in. This calculation shows the age at which the extra money you’ll get from waiting outweighs the benefits you gave up by delaying.

For example:

  • If you claim at 62 instead of 67, your break-even point is around age 78-79.

  • Waiting until 70 pushes the break-even age to 81-82.

If you’re healthy and have a family history of longevity, waiting might be the better bet.


Other Factors to Consider

  1. Health: If you’re in poor health or have a shorter life expectancy, claiming early may be smarter.

  2. Work Status: Working before FRA? Be careful—earning above $21,240 (in 2023) reduces your benefits.

  3. Spousal Benefits: If you’re married, your decision impacts your spouse’s benefit and vice versa.


Common Mistakes to Avoid

  • Claiming early without considering the long-term reduction in benefits.

  • Ignoring the impact on survivor benefits.

  • Failing to account for taxes—yes, Social Security benefits can be taxable!


Key Takeaways

  • Claiming early (62) = smaller checks but quicker cash flow.

  • FRA (66-67) = full benefit with no reduction.

  • Waiting until 70 = bigger monthly checks for life and higher survivor benefits.

  • Use a break-even analysis and consider your health, work plans, and financial needs to make the appropriate call.


Ready to crunch your numbers?




 

 

*The examples in this blog are hypothetical and for illustrative purposes only.  Information provided should not be considered as tax advice from GWN Securities, Inc. or it's representatives. Please consult with your tax professional.

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