I’m Starting Social Security at 62
I turned 62 this month. I know what you’re thinking. I don’t look a day over 61 and a half. Thank you. If you Google anything related to the topic of when to take Social Security you must be prepared to wade through a massive amount of articles discussing whether it is better to start retirement benefits at 62 or wait until your full retirement age or until you reach age 70. I’m not going to pretend that I can adequately address all of the various scenarios, some of which can be quite complex, that come into play when people address this question. I can only give you my view.
The basic issue is that when you look at your Social Security retirement benefit, it shows as a monthly amount you would receive once you reach your Full Retirement Age (FRA), which for me and those of my age group, is 66 years old. You can choose to start receiving this benefit as early as on your 62nd birthday. If you choose to do so you will receive 75% of your FRA benefit. Further, if you want to defer receiving your benefits beyond your FRA, the amount you receive will increase by 8% per year for each year you wait until you reach age 70 at which time you begin to receive 136% of your FRA benefit. So, let’s say that your full retirement age benefit would be $1,000 per month. The options would look like this:
- Age 62: $750
- Age 66: $1,000
- Age 70: $1,360
Of course if you choose to start your benefits at any age in between, your monthly benefit will be adjusted accordingly.
Most of the articles you find will advocate waiting to take Social Security (SS) benefits at your FRA or, if possible, waiting until age 70 in order to maximize your benefits. Many of the articles will also show how your total benefits received will compare under the different scenarios.
First a word about a specific situation. If you are working at age 62, you will almost certainly be better off deferring your benefits because those benefits will be substantially reduced based upon any earned income you receive. So, unless you have stopped working, you will want to wait until you do stop or until you reach your FRA before starting your SS benefits.
Here’s my take. We don’t need to start taking Social Security now. I don’t intend this to be boasting, I’m simply saying that we have sufficient income from investments to cover our expenses without Social Security. You might say that this would argue that the best course is to defer to age 66 or beyond. However, I see this as an opportunity. If I first look at the simple case of starting benefits at 62 versus deferring until age 66, I will assume that benefits will be increase annually by 2% for the Cost of Living Adjustment (COLA), the total benefits received will be greater until age 80. From that point, the total amount of benefits received will be greater based upon starting at age 66.
Now let’s further say that taking the benefits at 62 will allow us to leave the equivalent amount invested, earning income for us at 4%. I know this is achievable since that is our current rate of income from these investments. In other words, we will spend the SS income instead of the income from these investments, i.e. it is an income replacement. The income will compound for the first 4 years (simple compounding yearly) and will add to our total benefits received. After year 4, we’ll assume we now have the freedom to spend the SS income as well as the income from investments so the compounding will stop but this additional income of 4% on the first 4 years of benefits will still be added to total benefits received each year. This is assuming that the 4% income will not grow, however, I have confidence that it will since we have invested in solid dividend paying stocks that have a history of paying increasing dividends, like AT&T (T), Kinder Morgan (KMI), Altria (MO), Johnson & Johnson (JNJ) and McDonalds (MCD).
Now when we compare this to total benefits received if we wait until FRA to start and we spend the income, we find that the “crossover point” has now been extended to age 93.
This is an outcome that I have a relatively high confidence in achieving and if I live beyond age 93, I will accept that I could have accumulated a larger total benefit had I waited until FRA to begin my benefits. However, I will have had the opportunity to spend more during those 30 years.
Now comes the disclaimer. There are many potentially complex choices involved in Social Security benefits depending upon your personal situation, savings and investments, marital status, relative ages of husband and wife, earning history, etc. I am not suggesting that everyone should start their benefits at age 62 or that they should not. You have to evaluate your options that best suit your circumstances. Since a majority of people are starting their benefits at age 62, there are discussions in the hallowed halls of government about implementing changes to make it more enticing for people to wait until FRA or conversely making it unattractive to start at 62.