When you become eligible for Social Security, the most important decision you need to make is when to claim the benefits. You can claim benefits early (as soon as age 62), at your full or normal retirement age, or late (up to age 70). Though many arguments are in favor of claiming benefits late because it helps you to get more benefits, there are valid reasons why you may want to claim benefits early. In this article, we will detail reasons to claim Social Security early.
Here are the reasons why you may want to claim Social Security early:
You need money now
This is the biggest reason to claim the benefits early. Many people claim the benefits early to cover their everyday living expenses. At the time of the 2008 recession, about 38% of eligible Americans claimed the benefits at age 62.
You don’t need benefits but have other plans
Some people may not need the benefits, but they still claim it because they believe it is better to claim now than later. For instance, many claim benefits early because they are concerned that Social Security money won’t be enough to meet their needs in the future.
Many believe it is better to collect benefits early and invest that to earn a higher return on that money. If you also plan to claim benefits early for this reason, you need to know that Social Security offers a 6% to 8% guaranteed annual return to those who wait until full retirement age or later.
You fear about your life expectancy
Many people claim benefits early because they don’t expect to live long enough to make use of the benefits. This way, they will be able to take back more of the money contributed to the government.
If you suffer from a chronic medical condition, taking benefits early could be a better option. This option is even better for a single person who doesn’t have to be concerned about the impact of an early claim to a surviving spouse.
Overall life expectancy is another reason why you might want to claim benefits early. The average life expectancy in the U.S. is about 76 years. This means that over 50% of people who claim benefits late may not be around after 76 years to use their benefits.
You don’t want to work
A 2023 study by the Economic Policy Institute found that 50% of workers above 50 years have physically taxing jobs, and more than half report working in hazardous or unhealthy conditions. Such types of jobs may encourage workers to retire early and claim their Social Security.
So, for people who have limited resources of retirement savings and are no longer willing to work, their Social Security could replace their earnings.
Maximize family benefits
If you are married, your decision to claim benefits depends on your spouse’s work history as well. Your decision to claim benefits early could allow you to boost your total household benefits.
Suppose your spouse is expected to get less in retirement benefits than you for whatever reason, including a lower salary, fewer work years, or health issues. In such a case, the spouse will qualify for a spousal benefit on your earnings record. Once you claim the benefits, your spouse will get between a third and a half of your benefit amount.
To make the best use of this scenario, the higher wage earner should file as late as age 70, while the lower wage earner could file early to ensure the latter gets at least some money flowing. After the higher earner claims the benefits, the lower earner could switch to spousal benefits to collect more money for the rest of their life.
Another scenario is when you no longer work, and your spouse’s work history doesn’t qualify him/her for benefits, claiming benefits early would mean you are agreeing to lower benefits for yourself. On the other hand, it would also mean spousal benefits for your partner. In this way, you get two incomes at a time.
Investments get more time to grow
If you are collecting benefits early, you may not need to resort (partly or fully) to your retirement investments and savings accounts to cover your expenses. This would give more time for your savings/investments to grow.
More control over your taxes
Claiming Social Security early may reduce your benefit amount, but it may give you better control over your taxes. The future, as we all know, is uncertain. If the tax rate goes up significantly in the future, then having a lower Social Security payment could prove more helpful.
A lower Social Security payment could prevent you from being bumped up into a higher tax bracket, which may further reduce your retirement income.
Here are major reasons why you should not claim Social Security early:
- Claiming Social Security early permanently reduces your benefits.
- You get less on a dollar basis from future cost-of-living adjustments (COLA).
- Until you reach FRA (full retirement age), Social Security (2023) deducts $1 from your benefits for each $2 earned above $21,240. This works as a sort of penalty if you continue to work after claiming benefits. Although the Social Security Administration returns the deducted money back once you reach FRA, it still leaves you with less money to spend now.
Final Words
So, there are valid reasons to claim Social Security early. Many of these reasons, however, depend on your current circumstances and needs.
If you decide to claim benefits early but later regret your decision, don’t worry, you still have a limited opportunity for a do-over. You can use a process called a withdrawal, which allows you to cancel your application for up to 12 months after you become entitled to benefits.
After withdrawing your application, you can reapply for benefits at a later date. A point to note is that you can only use the “withdrawal” process once in your lifetime.
