9 Reasons to Claim Social Security At Age 62
Social Security, officially called Old Age, Survivors, and Disability Insurance (OASDI), is a federal benefit program created to give eligible recipients a replacement income. The program's beneficiaries include retired people, their spouses, and those with disabilities. To qualify for Social Security benefits, you must accrue 40 credits during your working years. Social Security benefits typically form a significant chunk of a retiree’s retirement funds and directly affect the monthly sum you receive as long as you live. The general consensus is to delay collecting the benefits for as long as possible, since the sum you receive per month will be greater. However, you may need to claim your benefits before you reach the full retirement age due to unforeseen circumstances. The Social Security Administration (SSA) includes a provision for early withdrawal, allowing you to collect the benefits from the age of 62 itself. If you wish to learn more about Social Security benefits, and the implications of both delaying your benefits or collecting them from the age of 62, consult with a professional financial advisor who can guide you on the same.
This article explores some of the common reasons to claim Social Security benefits early.
9 reasons to collect Social Security payments early
1. You are running out of money
Many people take their Social Security benefits at age 62 for a simple reason – they need the money. You may need the money for your daily expenses, pay for unaccounted expenses, or even recover from a wrong investment decision. In such a scenario, claiming your Social Security benefits early can help you meet your needs.
As per Social Security Administration, early withdrawal of Social Security benefits has been noticed during times of economic crisis. According to a report, in 2008 - 2009, the global recession forced 36% of enrolled men and 39% of enrolled women to draw Social Security benefits at age 62.
2. You’re in debt
It is wise to clear your debt before you retire. Repaying a loan while not having a steady income post-retirement can be highly demanding. Therefore, If you have high debt levels when at the cusp of retirement, it may be a good idea to use your Social Security funds to clear off the debt before you retire. In fact, if you have high-interest debt, it might not be worth waiting to collect Social Security payments because the monthly payments you receive later may not be as valuable as the money you would save by paying off your debt now.
A debt-free portfolio is always better than waiting for larger Social Security savings.
3. You’re planning to start a business in retirement
If you are planning to start a business or engage in other business activities during your retirement, your Social Security benefits can be a valuable source of income. For example, you might use your Social Security benefits to pay for supplies or equipment, hire employees, or cover other business expenses. Additionally, you have the option to repay the borrowed funds to the Social Security Administration within the first year without any penalty.
However, it's important to carefully consider the potential risks and rewards of using your Social Security benefits for business purposes. While it can be a good way to generate income in retirement, it's also vital to have a solid business plan and to be prepared for the challenges that come with running a business.
Also see: Is Social Security Taxable?
4. You are dealing with serious health concerns
Social Security benefits are closely connected to the lifespan of the individual. While it is nearly impossible to predict how long a person will live, if you are aware of any health issues – terminal or otherwise – that may significantly reduce your lifespan, it is a good idea to cash out your Social Security benefits early.
If you begin receiving benefits at 62 rather than your full retirement age of 66 or 67, your monthly payment will be roughly 75% of your full-age benefit. Consider this scenario – If you were to receive $100 per month from Social Security at age 66, you would only get about $75 at age 62.
Now, you will have to wait for at least four years to get the remaining $25 per month. But by beginning to collect Social Security early, you have earned $3,600 in four years despite the reduced monthly payment of $75. Therefore, if you are worried about not being around long enough to benefit from delaying your Social Security benefits, it is advisable to withdraw your Social Security at 62. Additionally, the sum from Social Security may also prove helpful in taking care of your healthcare needs and medical expenses.
However, there is an exception to this scenario, if you have a spouse or a beneficiary who may benefit from your Social Security savings, you must consider delaying the withdrawal of benefits. If your Social Security payment value is higher than your spouse's, then delaying Social Security withdrawal can leave your partner with a bigger survivor's payment.
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5. You have passed your highest earning years
Your Social Security benefits are calculated based on your highest 35 years of earnings. If you are in your highest earning years and continue working, you may be able to increase your benefits by delaying when you start receiving them. However, if you are no longer earning as much or have retired early, you won't be able to increase your benefits by working more. In such cases, claiming early benefits could be a wise move.
6. You have better investment opportunities
If you are not solely dependent on Social Security benefits for survival and have a well-balanced portfolio to grow your wealth, then, in that case, you can explore reinvesting your Social Security fund. However, before withdrawing your Social Security benefits for reinvestment purposes, you should take a detailed look at your complete financial plan and confer with your financial advisor for an expert opinion.
It is important to remember that your Social Security benefits are guaranteed to increase at an annual rate of 8%. If you are reinvesting your Social Security benefits, you should find an investment option that outperforms this rate.
7. You aim to strategize your Social Security with your spouse
There are several ways to choose the withdrawal time in scenarios where you and your spouse are both beneficiaries of the Social Security plan. If you are a lower-income partner, you can opt to take your Social Security benefits at age 62. Your spouse, who falls under the higher income bracket, can then defer payments as long as feasible. In this manner, a couple can use the early withdrawal advantage of Social Security through one spouse and receive the 8% annual interest by postponing the claim through another spouse.
When the higher-earning spouse files for their Social Security benefits, the lower-earning spouse can move to the "spousal benefits" category. As per the SSA, the spousal benefit can be 50% of their spouses "primary insurance amount." This again depends on the individual’s age at retirement. Maximum benefits are extended when one of the spouse’s files for benefits only at full retirement age; if not, the spouse will receive a reduced benefit.
8. You have no dependents
As per SSA regulation, a surviving spouse can receive between 71.5% and 100% of their partner’s Social Security benefits. This amount is based on the age of the surviving spouse. Similarly, a disabled child can claim up to 75% of their parent’s Social Security benefit in the event of the guardian’s death.
However, suppose you don't have dependents or spouses (who will benefit from your Social Security savings). In that case, it is a good idea to start withdrawing the distributions at the age of 62 itself. You can use the benefits as soon as possible since your financial situation will impact no other parties.
9. You have concerns about the longevity of Social Security
According to the SSA, the combined OASDI trust funds will likely be depleted by 2035. While this depletion date is subject to several economic changes and market behavior, it is undoubtedly a concern that several Americans share. It is not uncommon to see individuals opting to file for Social Security benefits at 62 due to concerns about the plan’s longevity. If you opt to file for benefits early due to such concerns, it is advisable to reinvest the money in better financial schemes than spend it.
When you file for your retirement benefits is just as important as how you invest money for retirement. While there may be several incentives to hold off on filing for Social Security benefits, there may be certain situations that warrant an early withdrawal of the funds at age 62. You can base your decision to withdraw your Social Security money on several factors such as your financial health, your socio-economic conditions, medical expenses, among others. It's always a good idea to consult a financial advisor to understand the implications of early withdrawal of your Social Security income.
Use the free advisor match tool to match with experienced financial advisors who can guide you effectively on the pros and cons of early Social Security withdrawals and whether you would be better off delaying claiming your benefits or not based on your financial situation. Give us basic details about yourself, and the match service will help connect you with 1-3 professional financial fiduciaries that may be suited to help you.