Social Security Regrets: Why You Shouldn’t Claim Your Benefits Early
Written by
Laura Bogart
Edited by
Cynthia Measom
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For many Americans, Social Security is a crucial resource to help their golden years shine a little more brightly. Although you’re eligible to start receiving benefits at 62 years old, many financial advisors encourage seniors to wait for a few years longer. Those born after 1960 will reach full retirement age (FRA) at 67, though common wisdom suggests waiting until at least 70 years old before opting in to monthly payments.
The allure of collecting your benefits and clocking out of the workforce as early as possible is strong. But it’s often rooted in a fundamental misunderstanding of exactly how Social Security works. Though retirees might regard Social Security as akin to a 401(k) or other defined contribution plan, the Social Security administration actually determines your benefits based on your 35 highest- earning years. Simply put, collecting benefits too early can cut the number of potentially high-earning years counting toward your benefits. Crucially, it can also reduce the size of your monthly check.
Here’s more on why you shouldn’t claim your Social Security benefits early.
Waiting Can Increase Your Benefits
As True Tamplin, CEPF and founder of the financial education platform Finance Strategists, put it, “For individuals born in 1960 or later, claiming at 62 results in receiving approximately 70% of the full benefits they would be entitled to at their FRA. In contrast, delaying claims until the age of 70 can increase their benefits to about 132% of the FRA amount.”
The system is set up to discourage you from claiming early, encouraging you to stay in the workforce longer — which mitigates risks of the entire Social Security fund becoming depleted as more people reach retirement age.
It’s Unlikely You Can Change Your Mind If You Start Claiming Early
When Lou Czerwinski, CRPC®, an SEC Registered Investment Advisor with Allegiant Wealth Management, LLC works with clients, he carefully explains that claiming Social Security early means they’ll receive benefits for a longer period, but at a highly reduced rate. A client’s overall health and family history can be key factors in making the decision about when to claim benefits. Furthermore, the 30% reduction in benefits you’ll experience if you claim Social Security at 62 is permanent. Even worse? Your cost-of-living adjustment each year is also based on that reduced benefit. “While there are some exceptions, once you claim Social Security early, you cannot put the proverbial genie back in the bottle once it is out,” said Czerwinski.
It Can Put Your Long-Term Financial Viability At Risk
Longevity may seem like an odd concern among retirees. After all, isn’t staying healthy and vital enough to enjoy some years off the clock a core goal for many people? However, underestimating exactly how long you’ll live after you’ve started collecting Social Security means that your golden years might be spent focused on the brass tacks. Instead of planning a comfortable retirement, you’ll be worrying about making ends meet. If you’re planning a retirement that could last at least 20 years or so, dealing with reduced payments can have a dramatic impact on your long-term financial viability.
That’s why Alex Adekola, CEO and founder of Ready Adjuster, as well as a financial advisor who regularly counsels clients on retirement planning, urges people to wait until they reach full retirement age or age 70, when benefits max out. Adekola is quick to remind his clients that they’re often not just planning for their own futures, but they also have families to consider. “For married couples, the higher-earning spouse can maximize their benefit by waiting, while letting the lower-earner claim earlier,” he said. “This not only increases total household benefits but also provides higher survivor benefits as well.”
It Can Limit Your Ability To Keep Working
If you’re feeling pressured to bring in additional funds from Social Security while you’re still working, you should also know that your benefits are subject to taxation. According to Sal Cocurullo, finance expert and the founder of Revenue Land, you risk reducing your overall income and potentially pushing yourself right into a higher tax bracket. While Cocurullo acknowledges that there are perfectly valid reasons why you may feel pressured to take out your Social Security early, such as health concerns or lack of other income, he does caution that claiming Social Security benefits can limit your ability to continue working if you want to.
“If you claim before reaching full retirement age, there is an earnings limit that may impact how much you can earn while receiving benefits,” he explained. “If you exceed this limit, your benefits may be reduced or withheld altogether, depending on your age. This can be especially harmful if you are relying on a part-time job during retirement to supplement your income.”
Choose Wisely When It Comes To Claiming Your Social Security Benefits
Though it’s tempting to regard Social Security as “your money” that you’re rightfully entitled to, you must be very careful about when you choose to take advantage of it. Thinking about how long you can remain in the workforce and what you want life to look like for your spouse or people receiving survivors’ benefits can guide your choices. Consulting with financial advisors specializing in retirement or a trusted CPA can guide you in making the decision that will help polish up your golden years.
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