Additional Coverage:
- Dave Ramsey Encourages Retirees to Collect Social Security at 62 – 7 Pros and Cons (financebuzz.com)
To Claim or Not to Claim? Deciding When to Take Social Security
Deciding when to start collecting Social Security benefits can feel like navigating a maze, with choices that impact your financial future. While you can technically begin receiving payments at age 62, waiting until your full retirement age is the only way to secure your full benefit amount.
However, financial guru Dave Ramsey suggests that for some, an early claim at 62 could actually be a smart move, especially if those initial payments are strategically invested.
Ramsey’s core argument? Investing those early Social Security checks into high-performing mutual funds could potentially generate enough wealth to offset the difference in benefits you’d receive by waiting.
This strategy, he believes, could lead to a stronger financial outcome in the long run. Of course, this approach isn’t without its risks, as market performance and investment choices play a significant role.
With that in mind, let’s explore some of the potential benefits and drawbacks of claiming Social Security at age 62.
The Upsides of an Early Claim
- Get Your Money Sooner: For many Americans, claiming Social Security early is a necessity to cover immediate living expenses. Data from the Social Security Administration reveals that a significant portion of eligible workers, nearly 27% in 2023, opted to claim their benefits at 62, a trend that remained consistent even after the 2008-2009 recession.
- Health Concerns Can Influence Your Decision: It’s a somber but practical consideration: if your health is poor and you don’t anticipate a long lifespan, claiming benefits earlier might be more advantageous.
While waiting until 70 offers a larger monthly sum, it typically takes until around age 80 to break even on total benefits compared to claiming at 62. Given that the average U.S. life expectancy is about 78, those with chronic or life-limiting conditions might find an early claim more beneficial.
- Early Retirement is Within Reach: After decades in the workforce, especially in physically demanding roles, the desire to retire early is completely understandable. Claiming Social Security at 62 can provide the financial cushion needed to step away from your job sooner and enjoy your well-deserved relaxation.
- A Lifeline to Tackle Debt: With consumer debt reaching record highs in the U.S., many individuals feel overwhelmed by bills. Early Social Security payments could offer a crucial financial boost to start paying down debt and regain control of your finances.
The Downsides of Filing Early
While there are compelling reasons to claim Social Security early, it’s crucial to understand the potential drawbacks.
- Permanently Reduced Monthly Benefits: The most significant consequence of claiming early is a permanent reduction in your monthly benefit amount. The closer you are to your full retirement age, the smaller this reduction will be, but it’s a factor that will impact your payments for the rest of your life.
- Smaller Cost-of-Living Adjustments (COLAs): Social Security payments are adjusted annually to account for inflation through COLAs. If you claim early and receive a smaller base payment, your COLA increases will also be proportionally smaller over time, meaning less additional money in your pocket each year.
- Temporary Penalties if You Continue Working: If you claim Social Security early but continue to work, you might face a temporary penalty.
The Social Security Administration will deduct $1 from your benefits for every $2 earned above an annual limit (which is $24,480 in 2026) if you are under your full retirement age for the entire year. The good news is that these reductions are credited back to you once you reach your full retirement age, potentially boosting your future benefits.
The Bottom Line
Claiming Social Security early offers several advantages, from covering immediate expenses to addressing health concerns or achieving early retirement. However, it’s vital to remember that an early claim results in permanently lower monthly benefits and less impactful cost-of-living adjustments. On average, Social Security replaces only about 40% of pre-retirement earnings, so careful planning is essential.
As always, consulting with a financial advisor is a smart move to determine the best strategy for your unique financial situation and long-term retirement goals.