Why Do So Many People Choose to Claim Social Security at Age 62?

The decision to claim Social Security at age 62, although you receive lower payments, can significantly impact your financial well-being in retirement. Many individuals opt for this course of action to ensure a steady income, especially when they are struggling financially. Let's delve into the reasons why so many people make this choice.

Financial Necessity

For some, taking Social Security at age 62 is a matter of necessity. These individuals are in urgent need of income to cover essential bills and expenses. Although the benefits are reduced by about 30% compared to the full retirement age (usually 66 or 67), the immediate financial relief is often a priority. This is particularly relevant for those without other sources of income, like pension funds or part-time employment.

Life Expectancy Considerations

Another significant factor is the life expectancy of individuals. Some people believe they have a shorter life expectancy than their break-even age, which is the point at which the increased benefits at a later age will compensate for the lower payments received at 62. The break-even point is calculated based on the difference in monthly benefits and the number of months until the total accumulated benefits equalize. For instance, if you receive $2,083 per month at age 62 but only $1,250 at age 67, you would need to live for 12 years to break even (125,000 ÷ 83 1,506 months). This is a real-world example, as the author's situation demonstrated.

Opportunity Costs and Financial Planning

Many people also consider the opportunity cost of waiting. If you take Social Security at 62 and do not withdraw from retirement accounts like IRAs or 401(k)s, your funds continue to earn interest, which could potentially make up for the reduced monthly payments. For example, by not tapping into retirement accounts and letting the money grow, you might have more money in the long run. The author, who started taking Social Security at 62, chose to let their ETFs and mutual funds grow, which they believe will offset the higher monthly benefits received at a later age.

Additionally, couples often plan to both take Social Security at 62 and wait until the full retirement age for the higher benefit. This strategy ensures a higher income until one spouse passes away, and the surviving spouse can receive the higher benefit. If the lower-earning spouse takes the benefits early, the higher-earning spouse can wait until a later age to maximize the benefit for the survivor. In some cases, this even applies to ex-spouses who were married for 10 years or more.

Guaranteed Income vs. Future Uncertainty

For some individuals, the idea of guaranteed income is more appealing than the potential for higher benefits later on, especially if there are uncertainties about their future health and longevity. The phrase "a bird in the hand" often applies here, as people prefer to have a guaranteed income stream now rather than waiting for potentially lower benefits in the future. The financial security provided by taking Social Security early can offer peace of mind during a time when they may be more active and healthy.

Natural Lifespan and Long-Term Care Coverage

Lastly, individuals may take Social Security early if they have a long-term care insurance policy, like the author, who took out such a policy to cover potential future long-term care needs. Even though the premiums are not cheap, they provide peace of mind for those concerned about their extended life expectancy.

While there are arguments for waiting, the decision to claim Social Security at 62 is primarily driven by financial necessity, life expectancy, opportunity costs, and the desire for guaranteed income. Each individual's situation is unique, and it's crucial to do comprehensive research and seek professional advice before making this important decision.