Money & Policy

5 Bad Reasons to Claim Social Security Early

Your rationale for claiming at 62 may not stand up to facts

( This article appeared previously on MarketWatch. )

Just when I think I’ve heard every bad reason for taking Social Security early, another one pops up. Understand — there are “good” reasons to take Social Security early. But “Bad” reasons aren’t supported by the facts. Here are the top five “bad” reasons:

1. I’ll get more money by taking it early.

Are you sure you want to bet on dying young?

Do the math. Take Social Security at 66 instead of 62, and you’re money ahead by age 78. Take it at 70 and you’re ahead by 82 1/2 — before average life expectancy. Married? Delaying Social Security can mean more money for the longer-living spouse too.

Fact-based approach: See if filing early pays. Estimate your life expectancy at sites like Living to 100 and Blue Zones, or view averages on a table. Estimate your Social Security payment from the Social Security Administration (SSA) at SSA’s website.

Compute the dollar amount of your first few years of Social Security and consider setting aside that cash to replace those early payments.

2. My friend died before he got Social Security.

After paying for decades, the idea of getting nothing is galling.

But think about this painful fact: An early death means you no longer need long-term financial planning. Actuary and author Steve Vernon suggests your bigger problem is a late death, with the need to fund a long life.

Fact-based approach: Remember that, on average, you and your spouse get more Social Security by delaying (see Bad Reason #1). Social Security is excellent longevity protection, so don’t settle for a smaller early payment.

3. I can’t stand my job.

Understood. Sometimes you just have to leave, even if it costs. But it doesn’t follow that you should take Social Security now unless you really need the money.

Fact-based approach: Plan your landing before you bail out. Think about alternatives to taking your Social Security early. A fun part-time job will pay better. Drawing down your savings might make more sense. Talk to a fee-based financial planner. The Social Security is there if you need it, but it’s not the only alternative to your yucky job.

4. I don’t want to spend down my savings.

Yes, it’s really hard to start spending your nest egg.

But in some cases, it makes good sense. Compute the dollar amount of your first few years of Social Security and consider setting aside cash to replace those early payments. You could come out ahead in the long run.

Consider taxes, too: if you’re blessed with a large traditional Individual Retirement Account (IRA), the Internal Revenue Service will force Required Minimum Withdrawals (RMDs) at 70 1/2, as you can see here. The larger your IRA, the bigger the withdrawals and the tax bite.

By contrast, if you partially draw down your IRA early and delay Social Security until 70, your forced withdrawals will be lower, and your relatively higher Social Security is tax advantaged.

Fact-based approach: Look at your savings vs. your Social Security payment and consider creating a replacement fund. Talk to a financial planner or tax professional about early vs. late IRA withdrawals.

5. Social Security is going broke.

You’re thinking Social Security will be bankrupt any day now, and you want to get yours before the money’s gone.

There are two problems with this. First, Social Security isn’t broke. The latest accounting shows it’s 100 percent solvent until 2034. Not exactly an imminent train wreck. And after 2034, it could continue to pay 79 percent of benefits, not a bankrupt zero. That assumes no fix before then.

Second, every proposed fix gives older people a break, by focusing tax increases or benefit cuts on younger generations.

If you’re already Social Security age, there’s no big rush.

Fact-based approach: Learn about Social Security’s solvency. And consider: would Congress let the most popular program in history die?

Naturally there are good reasons to take Social Security early: short life expectancy, needing the money to make ends meet, exercising a “zombie” strategy, and more. Just don’t take it for a bad reason. And as always, keep on planning.

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