There will always be situations where, even if you understand the advantages of delaying benefits, you simply cannot wait 3 to 8 years without the additional income provided by Social Security. Here are a few situations where it likely makes sense to take early benefits at age 62, despite the fact that it will cost you money in the long run. Retiring at 62 has different pros and cons depending on your unique situation.
Low Income
It doesn’t help you to earn more benefits later if you can’t afford to pay your bills today. You should always prioritize your immediate needs (housing, food and transportation) before worrying about investment returns. You wouldn’t starve yourself to add money to a savings account, and Social Security is a form of retirement savings. The bottom line is you need food and shelter first, so if that is a concern then go ahead and claim your benefits early.
Health Issues
None of us will live forever and you will need to survive into your eighties to gain the highest returns from the strategies in this book. With that in mind, if you have a medical condition that will likely prevent you from seeing your 83rd birthday, then you might decide to enjoy your benefits today. Keep in mind though that your decision here could affect your spouse’s benefits as discussed in Chapter 3.
Secure Health Insurance
This is a big one, and it impacts everyone regardless of their current health. Even if you elect to receive early benefits at age 62, your Medicare insurance does not begin until age 65. Don’t leave a stable job with health benefits solely on the premise that a combination of savings and social security will be enough to fund your retirement. An average couple in their 60’s pays close to $2000 per month for private health insurance (not including out-of-pocket expenses). You really need a secure health insurance plan between the ages of 62 and 65 if you want to minimize the risks of claiming early retirement.
Better Financial Opportunities
What I would call “the rarest of circumstance” would be if you have an investment option that exceeds the risk-free 7% return of delaying your benefits. This only applies to people who have an extraordinary investment opportunity, or those who are comfortable gambling away their returns in hopes of beating the 7% guaranteed return. If you are lucky enough to be in this group then by all means take advantage of your good fortune.
Officially Retired
Many of you will continue to work after age 62, and if you make over $17,640 the government will reduce your benefits $1 for every $2 you earn over this amount. Your early benefits will also factor into how much you pay on income taxes at the end of the year. So although you will be receiving more money with early benefits, a hefty chunk will disappear before it lands in your checking account. Thus, you want to be officially retired before opting for Social Security benefits at an early age.