An underappreciated fact about Social Security is this: It lifts people out of poverty. Indeed, about 38% of Americans 65 and older would have been living in poverty in 2020 if not for that federal retirement benefit, per the Center on Budget and Policy Priorities. With Social Security, that percentage plummets to 9%.
There's a decent chance that Social Security will keep your income in retirement above poverty levels, too. But it's important to make smart decisions regarding it. And one of the first major choices you'll need to make is when to start collecting your benefits. You can file for them when you're as young as 62, or wait until as late as 70. Here are some reasons to start early.
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The best reason to claim early? Because you need to
If you start collecting your Social Security benefits early, you'll be in good company -- because 62 was recently the most popular age at which people have started. (Nearly 45% turned on the spigot before they turned 65.)
If you wait to start taking benefits until your "full retirement age," which will be from 66 to 67 depending on when you were born, you'll collect what the program considers your "full" benefit each month. File earlier, and you'll get less. File later, and you'll get more.
The best reason to start collecting early is simply that you need the income sooner. That may be because you have found yourself out of a job and are unable to find a new one, or you might have developed a health condition that has removed you from the workforce, or you might be spending a lot of time caring for a loved one -- there are many possible reasons.
Many people end up retiring earlier than they expected to. In fact, fully 37% do, according to a 2019 report from the Center for Retirement Research at Boston College.
Some early retirees have sufficient income from investments, annuities, pensions, and other sources that they may be able to delay starting to collect Social Security. But many can't afford to do that.
Consider that, according to the Employee Benefit Research Institute's 2022 Retirement Confidence Survey:
- 34% of workers surveyed said that the total value of their savings and investments, excluding the value of their primary home, is less than $25,000.
- Even worse, roughly 1 in 5 people had less than $1,000 saved.
Another reason to start your benefits flowing early
There are more reasons than the ones above to consider starting to collect your benefits early. There's your expected lifespan, for instance. Starting your Social Security benefits flowing before your full retirement age will make the individual monthly checks you receive smaller -- but you'll receive many more of them than you would if you delayed.
So if you have many relatives who have died young, or you're not in the best of health and feel you stand a decent chance of having a shorter-than-average lifespan, it makes sense to start early. Even if you think you're likely to live an average-length life, it can make sense -- because the benefit calculation formula is structured so that people who live average-length lives will collect approximately the same amount in overall benefits from the program no matter what age they are when they start. If you turn out to be one of them, it won't make much of a difference when you start.
You might also start collecting early as part of a coordinated strategy with your spouse. If one spouse has earned less during their career, for example, it can make sense for that person to start taking their benefits early, but for the other partner to delay filing for benefits.
For some people, though, delaying is best
Why would anyone delay starting to collect benefits beyond their full retirement age? Why, to make those benefits bigger, of course. For each year that you delay past your FRA, up to age 70, your benefits will increase by about 8%.
So if you can delay, it's worth thinking about doing so. Maybe you're happy continuing to work at your current job until you reach 70. Or maybe you have enough money in your own retirement accounts that you can comfortably tap them more heavily for a few years until you start taking Social Security.
Each of us should crunch our own numbers and consider our own circumstances when deciding when to start collecting Social Security benefits. But don't leave the status of this critical future income stream to chance.
