Five GOOD Reasons to File for Social Security at Age 62

If you want to start a fight on YouTube, tell people when they should claim social security and then sit back and watch the comments pour in. Now deciding when to claim social security benefits is a major retirement decision with lifelong financial impact. And as a general rule, I tend to lean towards delaying claiming your social security. But in today's video, I'm going to walk through five major reasons you should claim your social security benefits as early as possible. And I'll also give you five reasons of why you might want to delay. We're going to look at breakeven analysis, how longevity and life expectancy play a role, and much more. My goal is to provide a balanced overview, so you have the tools you need to make the decision about when you should claim social security. Because it is not a one-size-fits-all decision, no matter what people in the comments may claim. But first, my name is Kevin Lum. I'm a certified financial planner, and this channel is dedicated to helping a million people retire without worry. Now before I dive in, let me set the stage with a 30-second overview of social security benefits and how they pay. Social security provides retirement benefits based on your lifetime earnings, and there's a whole formula that goes into it. And then the amount that you receive is going to depend on various factors, including the age at which you start claiming benefits. So after years of working, at your full retirement age, typically age 66 or 67, you will qualify for your primary insurance amount, sometimes referred to as your PIA. If you take social security early, and you can claim as early as age 62, the amount of the benefit will be reduced. If you delay taking social security past your full retirement age, the amount will increase. It increases about 8% a year. So just to give you a quick idea of what this might look like, and I'm just making these numbers up, but at your full retirement age, your benefit amount might be $3,000. If you claim at age 62, you'll take a reduced amount, maybe $2,000. And if you delay till age 70, you'll get an increased amount, maybe $4,000. And so the big fight is, should I claim my benefit at age 62? Should I wait to my full retirement age? Or should I delay all the way to age 70? As you know, there is a breakpoint, typically between the ages of 78 and 81. And I'll show you an example a little bit later on in the video. But if you live past that breakpoint, it's in your best interest to claim later. Now, I've done a whole video on this, and my comments are full of people screaming that the average life expectancy of an American is age 79. And if you're a man, it's even less, it's age 73. And so you should take the benefit as soon as you possibly can, and that the government just wants you to delay. Now, there are a ton of variables that impact your life expectancy, economic status, where you live, race, etc. But the other thing that nobody takes into account when looking at those averages is that those averages are skewed down by people who die early in life. Let's say babies who tragically die early. But if you look at people who beat the odds and live till age 65, they have a much higher life expectancy than the national average. If you don't believe me, just go to the Social Security Administration. They publish their actuarial tables, and I'll put a link in the description. But based on their numbers, if you are a 65-year-old male, they expect that you'll live to nearly age 82. And if you're a 65-year-old female, they estimate you'll live to almost 85 years of age. That also means that 50% of us will also live longer than those expectations. That's a pretty big gamble to take. So making your decision around when you take your Social Security benefit based upon a headline that says you have a life expectancy of 73 years of age is probably not the best way to build your retirement plan. I view Social Security as an inflation-protected deferred annuity. If you make it past the breakpoint, the government is going to pay out a lot more money for you than if you passed early, possibly millions of dollars. At the same time, some of us should claim benefits as early as possible. So now I want to talk about five reasons that you should claim your benefits as early as possible. So the first reason you might want to take Social Security as soon as possible is you want to allow other investments to continue growing. So for example, if you're planning on retiring and you could live off your Social Security benefits at age 62 and you have investments that you want to continue growing, say in a Roth IRA or a taxable account, and you're trying to avoid a capital gain or trying to avoid taking a distribution, you might want to consider claiming Social Security early to allow those investments to continue growing. Although typically with proper planning, you can pull money out of a taxable account tax-free if you have no other income coming in. In fact, in the description, I'll post a link to a video where I talk about how you can take capital gains out of your account completely tax-free. That could be a reason why you should claim Social Security as early as possible. The second reason you should consider claiming your Social Security benefits as soon as possible is if you have a guaranteed income source that's inflation protected like a pension or an annuity, it might be hard to avoid having your Social Security benefit taxed. And if claiming the benefit allows you to retire early or retire, you know, when you want to by your retired retirement date, then it could make sense to go ahead and claim Social Security as soon as possible. The third reason you should claim your Social Security benefits as soon as possible is you have a short life expectancy or a poor health prognosis because the numbers for claiming Social Security later work best if you have a long life expectancy. If you have a life expectancy that's under 80 years of age, you should take your Social Security benefits as soon as you possibly can. Let me use this as time to kind of walk you through a model and to kind of show you the different outcomes and the breakeven points between taking Social Security at age 62 and taking Social Security to full retirement age at age 70, and then also show you what the differences and the total payout over your lifetime could be. So I'm going to switch to my other screen and I'll walk you through those which apply to this situation, but also just in general kind of gives you something to think about as you're deciding when to take your Social Security benefits. And if you already have access to Right Capital, you can play around with this calculation. Okay, so here we are back in Right Capital. This time we just have Phil. I took off Claire because I wanted to show the impact on one individual. We're trying to decide when should we take claim Social Security benefits. And so this is the annual cash flow for each. So we're looking at as early as possible and full retirement age. So for the first few years, I think Phil's Social Security benefit in this scenario is $3,000 a month at full retirement age. So as you can see, if he claims at age 62, he's going to earn about $24,000, which is going to be significantly less than if you wait until full retirement age. And you can see that it's going to be about $521,000 less if he lives to, you know, all the way to however long this plan runs to. I think this particular plan runs to age 100. Now, if he passes earlier than that, it's going to diminish this amount quite a bit. So we can look at it a few different ways. So we can say early as possible against age 70. So if he ends up living a really long time and he takes it at age 70 as opposed to early as possible, it can end up meeting almost a million dollars throughout the life of the plan. So then we can come over here. We can also look at, you know, early as possible. Optimal is just 70 in this situation. I guess there's really nothing else to look at there. So then we can come over here and we can see, okay, so the optimal strategy that's in this situation, the system thinks waiting until age 70. So it's going to be a payout about $2.5 million, whereas withdrawing as soon as possible is going to be a bit of payout about $1.67. Well, it's assuming he lives to age 100. What if he only lives to age 85? Run this calculation again. Now you can see it still makes an impact, right? It still makes a difference of $240,000, but it's not nearly as, it's not 800 and something thousand. So like we talked about, it really depends on your life expectancy. If you have a long life expectancy and you're in good health, then it probably makes sense delaying. If you think you have a short life expectancy, either because of genetics or because you're in poor health currently or have a terminal diagnosis, then it might make sense to claim it a little bit earlier. Let me just show you one more thing here. This is the break even point. So we can see here in Phil's situation, when we're looking at early as possible versus age 70, he needs to live past age 78 just to break even. So at 78, if he claims as early as possible, he'll receive about $536,000. If he waits and claims at age 70, at age 78, he'd receive around 550,000. So 78 is the break even point. So now let's look at compared to the full retirement age. We can see that 77 is the break even point. Hopefully that gives you a good visual of what this looks like. So the fourth reason you want to claim your social security benefits as quickly as possible is if you are going to switch to your spousal benefits. So let me give you an example. Let's say you have one spouse who has a $4,000 a month benefit. The other spouse has a $1,000 a month benefit. The higher earning spouse has not yet claimed social security benefits. So you don't qualify yet for the spousal benefit. But when you do, you're going to earn $2,000 a month. So if you go ahead and claim your benefit at age 62, you know, you have 1,000 at your full retirement age. So maybe it's $750 a month. You can claim that $750 a month until your spouse begins taking their benefit. And then at that point, you can switch from your personal benefit to the higher spousal benefit. So if that's you, it makes sense to take your social security benefit at age 62. Go ahead and get as much payout as possible and then switch to the higher spousal benefit later. The fifth reason to take your social security benefit as soon as possible. And this is kind of a no brainer. Sometimes people will comment on my videos like that was so basic. But it should be said is if you can't work any longer and you need the income to live. There are all these great models that we can create about when you should take it at age 62 or full retirement age or age 70 and it's going to provide you more income and it's a guaranteed deferred annuity and all these things we can say. And I can give you spreadsheets helping you decide. But for some of you, you just can't work another day. You've made the decision. In fact, we've got some videos where we talk about this about why you should retire as soon as possible. There are some really good reasons to retire for some of you today. And to make that retirement work, you might have to go ahead and claim social security at age 62. Now what you want to be sure of is that you're not putting your long-term retirement plans in jeopardy by claiming early taking a lower benefit. You want to make sure that your retirement plan works and you can afford to live throughout your entire retirement. But if you need to retire today because you just can't work another day and you can make the numbers work. But the only way you can make the numbers work is if you claim social security today. It doesn't matter what anyone else says. It doesn't matter what the guy on YouTube says or the neighbor at a cocktail party or whatever it might be. You should go ahead and claim social security today. Now that's not financial advice. You want to model that out yourself. But just from a practical standpoint, if it allows you to retire today and you need to retire right away and you can make your plan work, then don't worry about all the formulas. Just go ahead and take that benefit. Okay, now that I've given you the five reasons you should claim that social security benefit as soon as possible, now I'm going to tell you why you should delay. Now, if you're still working and you claim your social security benefits before reaching your full retirement age, your benefits may be reduced if your earnings exceed a certain limit. In 2024, the limit is $22,320 for those who have not yet reached their retirement age. And so if that is you and you earn over that limit, for every $2 you earn above this limit, $1 is going to be withheld from your social security benefit. So if you're still working and earning above this threshold, it can lead to a significant reduction in your social security benefits. So if you're working and you earn over $22,320 a year, you should delay your social security benefits. The second reason you should delay your benefits is if social security is your only source of income and you're having a hard time making the numbers work. If you have very little margin for error in your financial plan, you want as much fixed income as possible. And the thing is, social security income is both guaranteed lifetime income and it's inflation protected. It's one of the best sources of income you can have in retirement. And so if you don't have a lot of money coming in from a pension or from an annuity or from your investment accounts or a sizable amount of money in your investment accounts, then it makes most sense for you to delay those social security benefits as long as possible. You want to allow that benefit to grow, to provide more guaranteed protected income. Like I said before, I see social security as a deferred annuity with guaranteed inflation protection, which by the way, is nearly impossible to purchase anymore. And it's impossible to purchase from insurance companies because it's a losing proposition for them. Very few people can offer you guaranteed lifetime income at the rate that the social security administration will offer you with inflation protection. So you want to just think about, if you're having a hard time making those numbers work, delay as long as you possibly can. The third reason you should delay is if your benefits will become a survivor's benefit for a younger spouse. So when one spouse passes away, the surviving spouse is entitled to the higher of their own benefit or the decedent's or the deceased spouse's benefit. So if the higher earning spouse delays their benefit, this can ensure that the surviving spouse, the younger spouse will receive a much higher benefit for the remainder of their life. And so this is important. If you have a younger spouse who's expected to have a longer lifespan, and if they have a lower lifetime earnings, then if you delay your benefit, the higher earning spouse, if you delay your benefit, then they are going to get a much larger lifetime benefit. So not only are you protecting your own retirement plan, but you're also providing a guaranteed annuity for your spouse at a higher level for the rest of their retirement. And this is one of the things I think a lot of people overlook and forget about is that if you're married, and particularly if your spouse is lower earning and is younger than you, you want to think about their long-time earning potential as well. And so that's a good reason to delay. The next reason to delay, and this is one of the primary reasons I believe you should, if you plan on trying to draw down your tax deferred accounts, think traditional IRA or traditional 401k, the social security benefit can decrease the amount you can remove or convert before moving into a higher tax bracket. Inversely, pulling that money out either to live on or to do a Roth conversion, it can cause more of your social security benefit to be subject to tax. And so if you have money in a tax deferred account and you need to pull that money out, the longer you can delay your social security benefit will allow you to stay in a lower tax bracket to either pull the money out of those accounts as a distribution or to do a conversion. And it can also keep that social security benefit from being subject to tax. So if you can take care of all that conversion and distribution on the front end, delay social security, not only can you stay in a lower tax bracket, but you can also keep your social security benefit from being subject to tax. And I have a whole video where I go into this much deeper. The fifth reason that you want to delay taking social security as long as possible is if you have a long life expectancy. If you have, like I have relatives, both my grandparents are in their mid nineties, I think 96 and 97. My great aunt lived to age 100. And so if you have long life expectancy in your family or you are in good health, you need as much guaranteed income for as long as possible. And so every year that you live over say age 79 or age 80 is just additional money that you are making. So if you live to age 100, you're going to make a significant amount of money. As I showed in the breakdown earlier, the cumulative benefit from waiting can exceed claiming early a very large sum of money. And so if you have a long life expectancy, you're in good health, then you most likely want to delay as long as possible. But ultimately each situation is unique. This is why it's so important to get a full retirement plan and where you take all these different variables and plug them into the plan because there is not a one size fits all answer. Not everyone should claim social security at age 62. Not everyone should wait to their full retirement age. Not everyone should delay to age 70. It's going to depend on your unique situation. The key is weighing all these variables carefully for your situation and not just blindly claiming as early as possible because you believe the government wants you to delay. Maybe they do, but that doesn't mean it's the smart move for you to make. There are great reasons on both sides, both for and against claiming social security benefits early and delaying. And getting the right decision on this question could have long lasting impacts in your financial plan. So think long and hard before you make this decision and don't go off a knee jerk reaction because someone convinced you that you are an idiot to delay or someone convinced you're an idiot to take your benefits early. Figure out what makes sense for you. And I actually have a short guide that I'm going to link to in the description below that gives you some questions to consider when it comes to your social security benefits. So I'll put a link to that in the show notes. And also I'm going to link to a playlist with our various social security videos. I go deeper into spousal benefits, working while claiming social security, how social security benefits are taxed, and much more. And you can watch that now.