The Pros and Cons of Taking Social Security Early

The Pros and Cons of Taking Social Security Early

If you are eligible for Social Security benefits, you have options on when to collect them. You can collect them as early as age 62, at your designated retirement age (typically age 66–67, depending on your year of birth), or as late as age 70. If you choose to receive Social Security payments before reaching full retirement age, your monthly payments will be lower. Likewise, if you delay receiving your payments until after your full retirement age, they will be larger. There are pros and cons to taking Social Security early, at full retirement age, and later.

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The Pros and Cons of Taking Social Security Benefits Early

If you opt to begin receiving Social Security payments before your full retirement age, your monthly benefits will be permanently reduced. For example, if you started receiving retirement benefits at age 62 and were born between 1943 and 1954, your benefits would decrease by 25%. If you were born after 1960, opting to receive Social Security benefits at age 62 would reduce your benefits by 30%.

Your age, the date you started receiving benefits, and the total amount you have contributed to the system over your lifetime determine your monthly Social Security benefits.

In addition to a permanent reduction in your monthly Social Security benefits, taking Social Security benefits early also reduces your cost-of-living adjustments because your base benefit amount is reduced.

People are more likely to choose to start receiving their Social Security benefits early when unemployment and recession rates are higher. One of the biggest benefits of receiving Social Security early is access to your funds. If you need or want your money now, taking Social Security before full retirement age can be a good option.

Health issues, or the belief that you will not be able to fully collect all of your Social Security benefits, is another common reason for collecting Social Security early. Your financial advisor can help you calculate your breakeven age. It typically takes 12 to 14 years beyond your claim date to receive the same number of dollars as you would if you started claiming at age 62.

If you have health issues or current financial needs, taking Social Security early is a good option, especially if you do not have to worry about the potential impact of reduced Social Security payments on your surviving spouse.

The Pros and Cons of Taking Social Security Benefits Late

If you choose to continue working past your full retirement age or stop working but delay drawing your Social Security benefits, you can increase your benefits. Each extra year that you work adds to your Social Security record. Higher lifetime earnings can result in higher Social Security benefits when you retire.

For each year you wait to receive Social Security benefits beyond your full retirement age, your benefits will increase by 8% per year until you reach age 70. A higher base Social Security payment also increases your cost-of-living adjustment.

If you delay receiving benefits until Social Security’s full retirement age and don’t live to the breakeven age, you will receive fewer total benefits over your lifetime.

Even if you delay retirement, don’t forget to sign up for Medicare three months before your 65th birthday to avoid any surcharges.

What is the Social Security Leveling Option?

If you choose to retire before becoming eligible for Social Security benefits, some pension plans will offer a Social Security leveling option. This option will increase your pension payments from the time you retire until you are eligible for Social Security at age 62 or full retirement age. Once you begin receiving Social Security, the amount you receive from Social Security will then permanently reduce your pension benefit.

The Social Security leveling option helps maintain a steady retirement income throughout retirement. When evaluating this option, you’ll need to take into account cost-of-living adjustments, life expectancy, and other income sources.

To qualify for Social Security leveling, you must be eligible to receive benefits from your employer’s pension plan, and you must provide your employer with an estimate of your projected Social Security benefits.

While Social Security payments were not intended to fully replace your income in retirement, they can supplement your other income streams. Depending on your current health and income stream, you may elect to receive Social Security benefits early, at full retirement age, or late. Each option has advantages and disadvantages to consider.

Choosing when you receive Social Security benefits does not have to be a one-time decision. Once you are eligible, you can claim your benefits at any time. Talk with your financial advisor to discuss the potential implications of electing to receive your Social Security benefits early or late.

There is no one-size-fits-all guide to investment. Working with a wealth manager who uses a fee-only financial planning structure can ensure you make the best financial decisions for yourself and your loved ones.

Gabriel Katzner

In 2002, Gabriel Katzner, received his Juris Doctorate with honors from the Fordham University School of Law. After spending the first 7 years of his legal career practicing at Cahill Gordon & Reindel LLP, an international law firm based in New York, he went on to found his own firm.
Building on his legal background, Gabriel’s vision emerged during his tenure at Katzner Law Group, where he excelled in estate planning, forming deep client connections. Recognizing the fleeting nature of traditional estate planning and the lack of comprehensive financial guidance, Gabriel conceived Frame Wealth Management. His commitment to lifelong client partnerships drove him to earn credentials as a CERTIFIED FINANCIAL PLANNER™ and CPWA® professional.

Frame Wealth Management, Gabriel Katzner

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