Claiming Social Security at 62

Figuring out when to claim Social Security is not easy. It involves work….the kind of work that most of us dread: calculations, age charts, what-if scenarios. It’s such a pain to figure out. Claiming Social Security at 62 should be well though out.

And most people don’t figure it out. Over 40% of retirees claim Social Security at 62 even if it might not be in their best interest.

It might be that they just don’t want to analyze their specific situation. They don’t know how much they’ll need to retire. Maybe they don’t know the proper framework to use to analyze Social Security. Some people don’t even know their full retirement age leading up to retirement. I don’t blame them. I blame the system.

Social Security is complicated. Combined with trying to figure out 401(k) withdrawals, pension income, tax rates in retirement, and it’s almost impossible.

So when things become impossible, we tend to shrug.

Social Security is so complex…even some trained professionals give the wrong advice. For example, the advisor who tells you that you should wait until 70 to claim no matter what. Sure, you’ll get a larger payment at that time, but at what cost?

When’s the Best Time To Take Social Security?

Here at Optimize Your Retirement, we believe you should make the decision on when to claim Social Security based on your specific situation. Make the right decision and you can make tens of thousands more during your retirement and you might even be able to retire earlier than you thought.

This issue can be divided into two categories:

  1. Quantitative – It’s not that easy to figure out either. If you claim at 62, you’ll get a smaller amount (about 70% of your FRA amount) but you’ll start getting paid sooner. Inflation plays a role. So does the time value of money. And don’t forget that you’ll be taxed at different rates depending on your provisional income. Some other major factors are your life expectancy, spousal age difference, and children. In short: it’s way too complicated to do in your head.
  2. Qualitative – What if you really just don’t want to work anymore? What if you have health issues? Some things ya just can’t quantify….so they’re a bit harder to handle. This is something that you’ll really have to decide for yourself based on the knowledge you have.

There’s no substitute to sitting down with a competent fee-only financial advisor. Not someone who sells insurances or peddles mutual funds, but someone who’s main focus is preparing people for retirement.

A good way see if someone’s decent is to ask them a very specific question like, “why does the SSA implement the bend point formula in calculating Social Security and how does it affect me?” If their answer is a blank stare, move on.

General Rules (We Did the Math)

  1. The break-even for time value of money and opportunity cost is 13 years. That means that you should claim Social Security at 62 if you don’t plan on living past the age of 75. If you plan on living past 83, then you should consider waiting until 70 to claim Social Security. This is just the first step and one of many factors. Now that you figured this out, you can move on to the next question.
  2. If your spouse is more than 5 years younger than you, you have limited savings, and they don’t have a strong earnings record, then you’ll want to wait to file until you’re at least full retirement age and more likely 70. Your spouse will receive a higher survivor benefit if you wait.
  3. If you’re 62 and have no income and no future prospects, you should start collecting Social Security right now. Don’t wait! The exception to this rule is if you have a large 401(k) balance ( > $500,000). If that’s the case, withdrawing a living wage from your 401(k) (or other retirement account) until you reach full retirement age likely makes the most sense. You may be able to make your portfolio last forever if you follow certain guidelines.
  4. If you’re currently in your 60’s and don’t need the money, then the general rule is to wait. The longer you wait, the higher your monthly benefit amount. The only exception to this would have to do with taxes and becomes extremely complicated. Since Social Security income is tax advantaged, it may make sense to take it early and defer other income. This will probably be where an advisor comes in handy.

Other Social Security Boosting Tips

If you want to get a good estimate of how much Social Security you’ll have at what age, the simplest and best tool is the Consumer Financial Protection Bureau’s Planning for Retirement Calculator. I’ve included a screen print of this tool below.

social security retirement planner

You simply input your date of birth and highest annual income. This calculator uses the SSA’s assumptions to estimate your benefit amount at different ages. For the above screen print, I used November 1, 1957 for the DOB and $80,000 as the highest annual income. In this example, your annual Social Security payment would be $25,728 at age 66 and 6 months versus $18,756 at age 62. This tool is not perfect but it gets close enough to assist you in making a decision.

It makes sense to consider working longer for as long as you possibly can. And it doesn’t have to be a binary decision. You can take early benefits and work. If you’re considering the implications of making money while collecting Social Security, check out this article to assuage your fears.

Social Security is calculated based on your 35 highest earning years. So, if you’re currently in your 50’s and thinking about how to boost your SS payment, try to earn as much as you can leading up to retirement. You can see your earnings history by logging into my Social Security. Don’t have 35 years of earnings history? Working longer will take care of that issue.

Most of the time it makes sense to wait to collect Social Security. Like investing, it’s good to sit on your hands and do nothing. Getting help is paramount. And going to the Social Security office is the last place you’ll want to go to learn about Social Security. The best option is a good fee-only financial advisor. Financial advisors are worth the nominal fee charged for setting up a lifetime of financial security.