Think you can beat the system? The truth about taking Social Security early
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As the golden hue of retirement beckons, one of the most pivotal decisions for Americans is determining the right time to claim Social Security benefits.
The allure of early retirement at 62 can be strong, but is it the wisest choice for your financial future?
The GrayVine is here to unravel the complexities of Social Security and help you make an informed decision that could impact your golden years.
The earliest age you can start receiving Social Security is 62, but it comes with a catch: your monthly benefit will be reduced.
For those born in 1960 or later, the full retirement age is 67, and claiming before that means accepting a smaller check—up to 30% less.
On the flip side, if you delay benefits past your full retirement age, your monthly payment increases by 8% each year until you reach 70.
Let's crunch the numbers. The average American who claims at 62 might receive a monthly benefit of $1,400.
If they wait until 70, that amount could soar to $2,480. Based on life expectancy data, a man turning 62 today could live to about 83.6 years, meaning he would collect benefits for approximately 21.6 years.
At the early claim rate, his lifetime Social Security income would be around $362,600. If he waits until 70, despite fewer years of collecting, his total could reach about $404,200.
Can you outsmart Social Security?
Some retirees consider a bold strategy: claim Social Security at 62, invest the money, and potentially outperform the system.
But is this financial savvy or a risky gamble? Laurence Kotlikoff, a Boston University economist, warns against this approach, citing the “enormously strong return” that Social Security provides for those who wait.
The stock market's average annual return after inflation is about 6.37%, which is competitive but not guaranteed.
Social Security's 8% annual increase, plus cost-of-living adjustments, is a sure thing. Keith Singer, a certified financial planner, echoes this sentiment, suggesting that most investors won't beat Social Security's guaranteed return.
Yet, the idea persists. Jim Sohan, a retiree from New Braunfels, Texas, claimed his benefits at 63 and is considering investing them.
He points out that while the Social Security benefit increases by 8% each year, there's no return during the years you don't collect.
To “beat” Social Security by investing early, you'd need to navigate the volatile stock market successfully.
Robert Brokamp, a senior adviser at The Motley Fool, notes that this requires investing in the stock market—a risky proposition given its unpredictable nature.
Monique Morrissey, a senior economist at the Economic Policy Institute, cautions that this strategy is akin to gambling and is not advisable for most people.
The reality is that about 77% of Americans rely on Social Security for necessary expenses, as per a 2024 Bankrate survey.
Also read: The retirement decision you can’t afford to get wrong—are you making the best move?
However, some investment experts argue that with disciplined investing and a consistently high rate of return, it's possible to come out ahead by claiming early.
The Motley Fool suggests that a 5% annual return on your Social Security dollars could make early claiming advantageous until around age 90.
Choosing to invest your Social Security benefits comes with significant risks. Caleb Silver, editor in chief of Investopedia, emphasizes that you're assuming the responsibility of generating returns, which requires a willingness to take on financial market risks.
After dissecting the data and expert opinions, it's clear that patience often pays off when it comes to Social Security.
Source: AARP / Youtube.
Claiming later typically results in a higher lifetime benefit, and the guaranteed increase in monthly payments provides a secure and predictable income stream in retirement.
Every individual's situation is unique, and the decision to claim Social Security should be based on personal circumstances, including health, financial needs, and other retirement income sources.
It's essential to consider all factors and, if possible, consult with a financial advisor to tailor a strategy that best suits your retirement goals.
Read next: Turning 65? Find out why you might not get full Social Security benefits yet.
Have you faced the decision of when to claim Social Security? What factors influenced your choice? Do you have insights or concerns about the investment strategy? Share your experiences and thoughts in the comments below!
The allure of early retirement at 62 can be strong, but is it the wisest choice for your financial future?
The GrayVine is here to unravel the complexities of Social Security and help you make an informed decision that could impact your golden years.
The earliest age you can start receiving Social Security is 62, but it comes with a catch: your monthly benefit will be reduced.
For those born in 1960 or later, the full retirement age is 67, and claiming before that means accepting a smaller check—up to 30% less.
On the flip side, if you delay benefits past your full retirement age, your monthly payment increases by 8% each year until you reach 70.
Let's crunch the numbers. The average American who claims at 62 might receive a monthly benefit of $1,400.
Claiming Social Security at 62 means receiving smaller checks but investing these funds could potentially yield a higher return. Image source: Max Harlynking / Unsplash.
If they wait until 70, that amount could soar to $2,480. Based on life expectancy data, a man turning 62 today could live to about 83.6 years, meaning he would collect benefits for approximately 21.6 years.
At the early claim rate, his lifetime Social Security income would be around $362,600. If he waits until 70, despite fewer years of collecting, his total could reach about $404,200.
Can you outsmart Social Security?
Some retirees consider a bold strategy: claim Social Security at 62, invest the money, and potentially outperform the system.
But is this financial savvy or a risky gamble? Laurence Kotlikoff, a Boston University economist, warns against this approach, citing the “enormously strong return” that Social Security provides for those who wait.
The stock market's average annual return after inflation is about 6.37%, which is competitive but not guaranteed.
Social Security's 8% annual increase, plus cost-of-living adjustments, is a sure thing. Keith Singer, a certified financial planner, echoes this sentiment, suggesting that most investors won't beat Social Security's guaranteed return.
Yet, the idea persists. Jim Sohan, a retiree from New Braunfels, Texas, claimed his benefits at 63 and is considering investing them.
He points out that while the Social Security benefit increases by 8% each year, there's no return during the years you don't collect.
Waiting until age 70 to claim Social Security provides the largest possible monthly benefit, due to a bonus system that increases the check size by about 76%. Image source: Julius Yls / Unsplash.
To “beat” Social Security by investing early, you'd need to navigate the volatile stock market successfully.
Robert Brokamp, a senior adviser at The Motley Fool, notes that this requires investing in the stock market—a risky proposition given its unpredictable nature.
Monique Morrissey, a senior economist at the Economic Policy Institute, cautions that this strategy is akin to gambling and is not advisable for most people.
The reality is that about 77% of Americans rely on Social Security for necessary expenses, as per a 2024 Bankrate survey.
Also read: The retirement decision you can’t afford to get wrong—are you making the best move?
However, some investment experts argue that with disciplined investing and a consistently high rate of return, it's possible to come out ahead by claiming early.
The Motley Fool suggests that a 5% annual return on your Social Security dollars could make early claiming advantageous until around age 90.
Choosing to invest your Social Security benefits comes with significant risks. Caleb Silver, editor in chief of Investopedia, emphasizes that you're assuming the responsibility of generating returns, which requires a willingness to take on financial market risks.
After dissecting the data and expert opinions, it's clear that patience often pays off when it comes to Social Security.
Source: AARP / Youtube.
Claiming later typically results in a higher lifetime benefit, and the guaranteed increase in monthly payments provides a secure and predictable income stream in retirement.
Every individual's situation is unique, and the decision to claim Social Security should be based on personal circumstances, including health, financial needs, and other retirement income sources.
It's essential to consider all factors and, if possible, consult with a financial advisor to tailor a strategy that best suits your retirement goals.
Read next: Turning 65? Find out why you might not get full Social Security benefits yet.
Have you faced the decision of when to claim Social Security? What factors influenced your choice? Do you have insights or concerns about the investment strategy? Share your experiences and thoughts in the comments below!
