Should You Take Social Security at Age 62?

Many of us wrestle with the decision of when to begin Social Security benefits. Waiting until age 70 typically provides the maximum allowable benefit amount but, the question of “Should I Take Social Security at Age 62?” is worth consideration. In this article, we will explore certain scenarios when beginning Social Security benefits at age 62 and investing that income may be a useful strategy. Let’s get started.

A Good Reason to Take Social Security at Age 62

In most cases, waiting until the age of 70 to begin your benefits is a prudent choice. By delaying your claim until age 70, the Social Security benefit you receive is at the maximum amount possible. 

Consider the following as you approach your decision:

• Do your family members typically live a long life?
• Other than Social Security, do you have sufficient funds to satisfy your financial needs during retirement?
• Married? How might taking Social Security early impact survivor benefits for your spouse?
• How is your overall tax burden impacted by taking Social Security benefits early?
• If taken early and invested, what investments might you consider?

Longevity Is a Consideration

For some, waiting until age 70 to claim social security may not be the most prudent choice. In a family with a history of shorter life spans or, if a person has health concerns that may shorten their like expectancy, triggering benefits early and investing that income might prove a more beneficial strategy. The breakeven point—the age at which the total benefits received from beginning Social Security at 62 equals those received when beginning at age 70—typically occurs by late 70s or early 80s. If you do not expect to live beyond this, beginning social security early and investing those funds may potentially help maximize the value of your benefits.

Is Social Security a Critical Source of Income in Retirement?

A primary consideration when weighing whether to activate Social Security income at 62 is to evaluate what other sources you currently have available in your portfolio to fund your retirement lifestyle. If there are financial assets other than social security that provide a comfortable retirement, than claiming an early social security benefit and investing it might be a worthy option to consider. If you choose to trigger your benefit early (at 62), this may allow you to build up non-retirement accounts by investing the income. The individual investment selections you choose should align with your risk comfort level and financial goals, allow for potential gains from market performance and offers an effective way to diversify your investment portfolio beyond traditional retirement accounts, such as 401(k)s and IRAs.

Over time, this strategy may help lead to significant growth in your overall investment portfolio, potentially providing a financial cushion available for various purposes, such as unexpected expenses, travel, or even additional retirement savings. From a philanthropic perspective for those looking to support charitable organizations, triggering social security income early offers greater ability to donate to a favorite charity.

Investing Social Security in S&P 500

For many, the investing of Social Security income in an S&P ETF (Exchange Traded Fund) offers potential benefits due to trends in positive market returns. After adjusting for inflation, the S&P 500 has historically provided average annual returns of about 7-10%. While past performance is not indicative of future results, investing in an S&P ETF may potentially provide a reasonable expectation of growth, over the long term. For those with more risk tolerance, utilizing this strategy may provide an alternate way to build non-IRA supplemental investment accounts. For more cautious investors, a more conservative investment, such as a bank certificate of deposit (CD), may be more appropriate. 

Unlike retirement accounts, non-IRA accounts or investment accounts, have fewer withdrawal restrictions, adhere to different tax structures, and provide you more flexibility in accessing your funds. These differences can be particularly useful if you anticipate needing additional cash for reasons other than retirement income, such as funding a major purchase or covering healthcare expenses. At ClearPlan, we take time to review your unique situation, balancing your risk tolerance and time horizon, to make individual recommendations designed specifically for you.

Spousal Considerations When Electing Social Security Benefits

If you are married, a frequently overlooked but essential consideration is the analysis of spousal social security benefits for the surviving spouse. If one spouse has accumulated a significantly larger Social Security benefit, the age at which they claim the benefit could greatly affect the Social Security benefit of the surviving spouse. For example, let’s assume spouse A has a social security benefit of $3000 / month at age 70, and spouse B has a social security benefit of $1500 / month at age 70. If, at age 71, spouse A dies, going forward, spouse B will receive $3000 / month. Spouse B will receive the larger of the two benefits…not both. If the couple began claiming their Social Security benefits at age 62, each benefit would be approximately 30% smaller. If the “early claim” strategy was chosen, and spouse A died at age 71, spouse B would receive (at the death of spouse A) $2100 / month. The unfortunate early death of spouse A would greatly affect the lifelong benefit the “widowed” spouse B would receive.

Tax considerations

Social security benefits are regarded as taxable income by the IRS. Beginning benefits at age 62 increases earned income and may potentially affect your tax obligations. Consultation with your tax professional is recommended prior to making any changes that may affect your current tax burden. Additionally, you may incur tax penalties should you trigger Social Security benefits before your “full retirement age”.

Grow Your Portfolio Now or Wait?

An important consideration to note, electing to claim Social Security at 62 results in a permanent reduction in the monthly benefit, as opposed to waiting until the full Social Security retirement age or later. Regardless of what age you decide to begin your Social Security income, investing the funds wisely potentially offers you strong market returns, helping to grow your investment portfolio and may offset the difference of a lower monthly benefit. This approach requires a careful analysis of your individual financial situation, risk tolerance, time horizon and long-term objectives.

At ClearPlan Wealth Management, we collaborate with you, understanding your unique circumstances and financial ambitions, offering valuable insight while enabling you to make informed, prudent decisions. Through careful, thoughtful planning, coupled with strategic investing, we aspire to enhance your financial security, helping provide a more enjoyable, comfortable, and flexible retirement. Has your financial advisor explored the many avenues and possibilities of your unique financial picture – present and future? If not, ask “Why not?” Explore our helpful checklist for interviewing and selecting a financial advisor and schedule some time to talk with us!

About the Author:

Troy Brewer has a talent for connecting successful people while serving as a respected mentor on the path to prosperity. By facilitating an all-encompassing approach to wealth management, Troy utilizes his extensive network of resources including estate planners, accountants, and business leaders to develop creative financial solutions for his clients. By fostering meaningful relationships, orchestrating financial strategies, and serving as a trusted confidant, Troy helps his clients achieve their desired life and legacy.

Troy has spent more than 25 years in the financial services industry, focusing on maintaining tight multigenerational relationships through a process-driven approach. As a Chartered Retirement Plans Specialist^® and member of the Baltimore Estate Planning Council, Troy specializes in low-cost investments, complex / multigenerational wealth planning and tax efficiency. His clients include business owners, corporate executives, and affluent families. Learn more about Troy or schedule a consultation.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is reliable or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Troy Brewer and not necessarily those of Raymond James. Investing involves risk and you may incur profit or loss regardless of strategy selected.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as financial advisors, we are not qualified to render advice on tax or legal matters. Raymond James does not provide tax or legal advice. Please consult you own legal or tax professional for more detailed information on tax issues and advice as they relate to your specific situation.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or fees, which will affect actual investment performance. Investors should consider the investment objectives, risks, charges, and expenses of an exchange traded product carefully before investing. The prospectus is available from your investment professional.