In many aspects of life, timing is everything. It's certainly true for Social Security benefits, as when you decide to start collecting them can have a major impact on how much money you receive from the program, in total.
You can start collecting your benefits as early as age 62 and as late as age 70. Here's a look at why starting as early as possible may be your smartest move.
The words "Retire in:," "15 years," and "5 years," with "15 years" crossed out in red and "5 years" circled
Image source: Getty Images.
Claim your benefits early because it's a wash
You're eligible to receive your full Social Security benefits at your "full" retirement age, which is specified by the Social Security Administration (SSA). For most of us, it's our 66th birthday, 67th birthday, or somewhere in between. Still, you can start collecting as early as age 62 and as late as age 70. For every year beyond your full retirement age that you delay starting to collect Social Security, your benefits will grow by about 8%. Delay from age 67 to 70, and you'll get benefits that are 24% bigger. If your full benefits would have been $2,000 per month, they would grow to $2,480 -- that's a difference of $5,760 over the course of a year. Meanwhile, if you start collecting early, your benefits can shrink by up to 30%.
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Starting as late as possible may seem like the unquestionably right thing to do, but that's not necessarily the case. According to the Social Security Administration, "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." That's right -- if you live an average-length life, it's pretty much a wash, and collecting at 62 can make a lot of sense. After all, the checks you get if you start collecting at 62 or 67 might be a lot smaller than what you'd get at 70, but you'll get a lot more of them.
Are there exceptions to this rationale? Of course. Starting to collect early does not make sense if you can hang in there and wait, and your family members tend to live very long lives -- especially if you're not in any hurry to retire. If there's a good chance that you'll live an average-length life, though, starting to collect early should be appealing.
Claim your benefits early in order to retire early
Another great reason to claim your Social Security benefits early, such as at 62, is that it can allow you to retire early. Most Americans think that retiring early is ideal, and that makes a lot of sense. After all, the sooner we retire, the sooner we can get around to all those fun activities that we've long meant to do, such as taking a few months to drive across the country, spending weeks abroad, learning to sail, or taking history courses at the local college. As they're younger and usually healthier, early retirees often can enjoy their money more and are better able to travel, enjoy recreation, and so on.
Of course, retiring early is easier said than done. You also need to have enough income to last for your entire retirement, which is why many people assume they can't retire anytime soon. And many people are right on that count. According to the 2017 Retirement Confidence Survey, about 24% of workers said they had less than $1,000 saved for retirement, and a whopping 55% had less than $50,000. Only 20% had socked away $250,000 or more -- and even that sum won't go as far as you might think it would.
Still, there's a decent chance that you'll actually be able to afford to retire early, or at least earlier than you originally planned, though you may have to get more aggressive about saving and investing. Here's how much you might amass, depending on how far from retirement you are, if your money grows by an annual average of 8%:
Growing at 8% for...
$10,000 Invested Annually
$15,000 Invested Annually
$20,000 Invested Annually
3 years
$35,061
$52,592
$70,122
5 years
$63,359
$95,039
$126,719
10 years
$156,455
$234,682
$312,910
15 years
$293,243
$439,864
$586,486
20 years
$494,229
$741,344
$988,458
25 years
$789,544
$1.2 million
$1.6 million
Data source: Calculations by author.
To establish some income streams for retirement, you might deploy some or much of your nest egg to buy a fixed annuity, and you might also devote a meaningful portion of your portfolio to healthy and growing dividend-paying stocks. A $400,000 portfolio with an average dividend yield of 3% will generate $12,000 per year -- $1,000 per month. There are other ways to increase your retirement income, too.
A torn piece of paper with a headline reading "Timing is Everything," against a blue background
Image source: Getty Images.
Claim your benefits early because you can change your mind later
Here's a final reason why you might start collecting Social Security early: because you can change your mind. Changing your mind isn't incredibly simple, but it can be done. Here's how: If you file to start collecting benefits at age 62 and then at age 63 decide that you want or need to reenter the workforce, you can pay back the money you received from Social Security and then file to start collecting benefits again at a later date. There are some other rules, too -- such as that you can only do this once and you can only do it within 12 months of claiming your benefits. Also, if anyone else is collecting benefits based on your income record (such as your spouse), they'll have to consent to your plan.
Here's another approach: If you're under your full retirement age, Social Security reduces your Social Security check by $1 for every $2 you earn from working above the $17,040 mark. If you're at or older than your full retirement age, your benefits are docked above $45,360. (These numbers are for 2018. They change from time to time.) Thus, much of your check will be withheld -- not denied -- if you work significantly after claiming benefits. What happens to that money? Well, it doesn't just disappear; instead, it's used later to increase the size of your monthly payments.
The most common age at which people start collecting Social Security is actually 62. Many of those folks are starting early because they want to, and many because they have to, perhaps because of an unexpected job loss or health setback.
Give some consideration to the idea of starting to collect early, yourself. Crunch your numbers and see if you might be able to make it work. Even if starting to collect Social Security benefits at 62 seems impossible, you still may be able to start collecting them earlier than you initially planned. Remember, too, that there are strategies you might employ in order to maximize your Social Security benefits.
