is taking social security benefits at 62 a bad idea?
TRANSCRIPT
When most people approach retirement age, they’re encouraged to wait as long as possible before applying for Social Security benefits.
The rationale for waiting is that the size of your monthly benefits is related to the ageyou begin receiving them.
If you apply at the earliest possible time – age 62 – then your benefits will be 25% less than if you wait until full retirement at age 66.
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Social Security Benefits by Retirement AgePercent of Primary Insurance Amount
If you apply at 62, for example, you’ll receive monthly checks for four years longer than someone who applies at 66.
To determine when to take benefits, in turn, you have to balance the value of receiving smaller checks for more months versus larger checks for fewer months.
Because the penalty for taking benefits early is the same for everyone, the breakeven point is the same as well!
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-$80,000
-$60,000
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$0
$20,000
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$60,000
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AGE
Cumulative Surplus (Deficit) in Lifetime Benefits Based on a Claiming Age of 62 as Opposed to 66
Thus, the question of whether to take benefits at 62 versus waiting until full retirement at 66 turns in part on whether you’ll live past 77.
The first is that the average life expectancy in the United States is 76.4 years for males and 81.2 years for females.
And we also know that if you’ve already made it to age 65, then your life expectancy increases to 84.3 years for males and 86.6 years for females.
If all you care about is maximizing your lifetime benefits, then when you take them matters less than this math implies.
As a recent government report explains:
"The Social Security benefit formula adjusts monthly payments so that someone living to living to average life expectancy should receive receive about the same amount of benefits benefits over their lifetime regardless of which of which age they claim."
All else equal, the decision of when to take benefits is less about an impersonal breakeven analysis and more about when you want or need to take them.
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