\Navigating Social Security can feel like a maze, with countless factors influencing your benefits. Whether you’re working or retired, married or divorced, or whether your employer is public or private, each of these variables plays a role in determining your Social Security options and payouts.
One thing you have control over, however, is when to claim your benefits. You can begin collecting Social Security as early as age 62, but choosing to wait until your full retirement age (FRA) will get you a higher monthly payout. The full retirement age varies based on your birth year; for instance, it’s 66 if you were born in 1954, but it rises to 67 for those born in 1960 or later.
If you choose to claim benefits at age 62, you’ll receive 30% less than if you waited until FRA. However, by age 67, you’d have already received five extra years of payments.
Finding the Breakeven Point
The big question is whether claiming early at 62 is better than waiting until FRA or even age 70. The breakeven point refers to the age at which the higher payments from waiting longer catch up to the larger total amount received from claiming earlier.
In this case, it’s not until age 78 that the higher monthly benefit from waiting until age 67 will surpass the extra payments you received by claiming at age 62. If you wait until age 70, your monthly benefit increases by 24%, but the breakeven point moves to age 80.
However, we don’t know how long we’ll live, so there’s value in taking the payments sooner rather than later. But we can’t ignore the time value of money, either.
Opportunity Cost of Delaying Benefits
By delaying Social Security benefits, you might face an opportunity cost—missing out on potential investment gains from taking the payments early. If you claim benefits at 62, you can invest the monthly amount instead of spending it. If you expect solid returns on your investments, the money you invest now could grow beyond the value of the payments you’d receive later.
For example, assuming a 5% annual return, the breakeven age would move to 88—five years past the average life expectancy of a man at 62. If you wait until age 70, the breakeven point could rise to 89. With a higher return, like 7%, you might not reach the breakeven point until after age 100.
The Impact of Longevity and Investment Returns
Ultimately, your decision comes down to two unpredictable factors: longevity and investment returns. If you believe you’ll live well into your 80s or 90s, delaying your Social Security benefits may make more sense. On the other hand, if you’re confident in earning positive returns on your investments, claiming early allows your savings to keep working for you.
For married couples with significant differences in income or age, survivor benefits and spousal options also come into play. These options could affect the timing of claiming benefits, but the principle of opportunity cost remains important.
In the end, taking Social Security early and investing the difference can offer you more flexibility and a better chance of financial growth—especially if you believe in the power of investment returns.
