Taking Social Security early isn’t always best

April 7, 2014 

I turned 62 a few months ago — which means I could claim Social Security. That doesn’t mean I plan to sign up for benefits. If I were to take Social Security at 62, I’d have to accept a 25 percent reduction in the amount I’d receive at 66, my full retirement age, and, in 2014, I’d lose $1 of my benefit for every $2 I earn above $15,480.

But what makes sense financially isn’t necessarily how people make this important decision. According to a report by Suzanne Shu of the University of California at Los Angeles and John Payne of Duke University, some people may feel strongly that they earned the benefits and are entitled to them as soon as possible. Others believe that they’ll lose out if they die before the break-even point (when the total payout you’d get by waiting until full retirement age to claim benefits equals the payout you’d receive by claiming at 62).

How you view life expectancy can also make a difference in your claiming decision. According to the Shu-Payne report, survey respondents who were asked the age they expected to die by estimated it to be 10 years earlier than those asked the age they were expected to live to. The die-by group said they would claim earlier than the live-to respondents.

Unhappiness at work is another reason for taking early benefits. If a job seems unpleasant when you’re 61, it can seem downright intolerable at 62, because you now have the option of taking Social Security.

When you’re dead, you won’t care who came out ahead, you or Social Security. But you’ll care a lot, says Shu, if you live to 70 and beyond and find yourself strapped because you took benefits early. Similarly, says co-author Payne, you’re better off assuming you’ll live to 90 or 95 than lowballing the age at which you’ll die. As for hating your job, look at your bottom line before deciding to ditch it for a reduced benefit.

My plan? I’ll wait until age 70 to claim Social Security and take money out of my retirement accounts to fill any income gap. If I die before 70, I should still have some savings to leave to my kids. But if I live until 70 or longer, I’ll have more income — and a better chance of making my savings last.

As someone who’s as patient as the next person but who also hates to lose, I’d say that’s a win-win scenario. For more on getting the most out of your benefits, see kiplinger.socialsecuritysolutions.com.

Jane Bennett Clark is a senior editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on money topics, visit Kiplinger.com.

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