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Making Smart Decisions: When to Take Social Security and the Risks of Starting Early

November 15, 2023

When to begin receiving Social Security payments is one of the most important financial decisions people must make as they get closer to retirement. The long-term effects of this choice must be considered despite the attractiveness of early access to these money. Early Social Security benefit selection can have serious consequences that could compromise your future financial security. Here we examine when to take Social Security and outline some potential drawbacks of doing so.


The Best Time to Take Social Security Is When You Get Deferred Gratification

The full retirement age (FRA), or the age at which you can earn your full benefit amount, varies depending on the year of your birth. Social Security benefits are initially payable at age 62. It often falls between 65 and 67. The long-term financial benefits of deferring your benefits past your FRA, however, can be significant.

Your benefit amount rises by a specific percentage, normally around 8% per year, for each year you postpone receiving Social Security between your FRA and age 70. This indicates that delaying payments until age 70 may result in a benefit that is 24–32% greater than what you would receive at full retirement age. Your retirement income may receive a large boost as a result of this rise, making your golden years more pleasant and secure.


The Drawbacks of Early Social Security Retirement

Although it is reasonable to be tempted to begin getting Social Security payments as soon as possible, there are several strong arguments against doing so since it could harm your financial security.

  1. Reduced monthly benefits: If you begin receiving Social Security benefits before reaching full retirement age, the amount of your monthly benefits will be permanently reduced. Your benefit is decreased by a specific amount for each year you apply for benefits before your FRA. This decrease may have a long-term effect on your retirement income and may make it harder for you to pay for necessary expenses as you get older.


  1. A longer horizon for retirement: People are living longer than ever throughout retirement. You might be preparing yourself for a longer retirement period with fewer benefits by claiming Social Security early. Planning for the prospect of having a steady income stream for the duration of your 80s or perhaps 90s is crucial.


  1. Opportunity cost: Early Social Security benefits may compel you to use up other retirement funds earlier than you had intended. This causes your personal savings to go more quickly, possibly leaving you with less money to pay for unforeseen costs, medical expenses, or leisure activities in retirement.


  1. Lower spousal and surviving benefits: If you're married, filing for Social Security benefits early has an impact on both your benefits and any future spousal and surviving benefits. The surviving spouse frequently qualifies for the higher of the two Social Security benefits after the death of one spouse. You might be limiting the amount of benefits your surviving spouse will receive after your passing if you take them early.


  1. Tax consequences: Early Social Security enrollment may result in taxation of your benefits, depending on your overall retirement income and tax circumstances. Your whole retirement income plan is impacted and the effective value of the benefits you receive is further decreased.

While receiving Social Security benefits sooner may seem appealing, it's important to consider the long term when making this choice. Your financial security and entire retirement experience can be greatly improved by choosing to defer receiving your benefits and claiming them closer to or even after your full retirement age. Waiting effectively amounts to investing in a larger monthly benefit that will sustain you during your retirement years.

Before deciding how soon to begin claiming Social Security benefits, it's crucial to speak with financial planners and retirement specialists. They may assist you in determining the best approach for maximizing your Social Security benefits while maintaining your financial security for the duration of your retirement journey by taking into account your particular financial circumstances, retirement goals, and estimated lifespan. Always keep in mind that being patient might result in higher rewards and a future that is more solid financially.