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3 Bad Reasons to Claim Social Security Early

Administrative note: My wife and I are moving this week, from St. Louis, Missouri to Manitou Springs, Colorado. As a result, there will be no articles this upcoming Friday (6/20) or Monday (6/23). Also, please be patient with me if I’m slower than usual in replying to emails.

There are many perfectly good reasons to claim Social Security early. For example:

  • You need the cash flow right now,
  • You are unmarried and have a shorter than average life expectancy,
  • You’re the higher earner in a married couple, and both you and your spouse have significantly shorter than average life expectancies,
  • You’re the lower earner in a married couple and either you or your spouse has a shorter than average life expectancy,
  • Inflation-adjusted interest rates are high, making the “take the money and invest it” strategy likely to work out well, or
  • You plan to take the money early and invest it in risky assets, you understand that there’s a significant possibility that you’ll end up worse-off as a result of that decision, and you can afford such an unfavorable outcome.

Unfortunately, people frequently claim Social Security early for reasons that don’t make a great deal of sense. Three especially common not-so-good reasons for taking Social Security early include:

  1. You want to spend more money in early retirement than in later retirement,
  2. You don’t want to work until age 70, and
  3. You want to leave behind money to your kids.

One way to assess the when-to-claim decision is to calculate the break-even point between two different strategies. For example, how long do you have to live for claiming at 70 to be a better strategy than claiming at age 62? As it turns out, if inflation-adjusted interest rates are below 2% or so, the break-even point occurs prior to age 83 (age 83 being the total life expectancy for an average 62-year-old).

Stated differently, unless investors can safely earn inflation-adjusted investment returns of 2% or more (not possible at the moment, given current TIPS yields), most people (specifically, most unmarried people and higher earners in married couples) can maximize the total number of dollars they’ll have available to them over their lifetimes by claiming Social Security at 70 rather than at 62.

The key insight here is that maximizing the total dollars you have available to you over your lifetime isn’t the same thing as maximizing your standard of living in late retirement only. If you prefer, you can use that increased amount of lifetime wealth to spend more in early retirement. Or, if you prefer, you can simply accumulate those dollars and leave them to your heirs.

In other words, even if you:

  1. Want to retire at age 62 or earlier,
  2. Want to spend more in the early stage of retirement than in later retirement, and
  3. Want to leave behind money for the kids…

…there’s still a good chance that delaying Social Security until 70 is the best strategy.

Want to Learn More about Social Security? Pick Up a Copy of My Book:

Social Security cover Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less
Topics Covered in the Book:
  • How retirement benefits, spousal benefits, and widow(er) benefits are calculated,
  • How to decide the best age to claim your benefit,
  • How Social Security benefits are taxed and how that affects tax planning,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"An excellent review of various facts and decision-making components associated with the Social Security benefits. The book provides a lot of very useful information within small space."
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