One of the most important retirement decisions you'll ever make can be summarized in the titles of two classic rock songs. In 1976, the Steve Miller Band had a hit with Take the Money and Run. Eight years later, Van Halen scored with I'll Wait.
Many Americans choose to take the money and run by claiming Social Security benefits when they reach age 62. Others prefer to wait until full retirement age, which is 67 for anyone born in 1960 or later.
As for me, I've always been more of a Van Halen fan. Here's why I won't claim Social Security benefits at 62.
Easing into retirement
I fully understand why so many people opt to begin receiving Social Security benefits as early as possible. They want to retire early to do other things they'd rather do instead of working at their current jobs.
However, there's a steep penalty for claiming Social Security at 62. For all of us who were born in 1960 or later, our monthly benefits will be reduced by 30%.
If I had a burning desire to fully retire, I might consider taking this big cut. But I love what I do — writing about investing and retirement planning. My goal is to ease into retirement by slowly reducing how much I write without stopping altogether.
Could I claim Social Security benefits at 62 and keep working? Sure. The problem, though, is that Social Security will claw back $1 from benefits for every $2 that I make above a certain threshold (which currently is set at $19,560). While I'll be able to receive those foregone benefits when I reach full retirement age, this isn't an appealing scenario to me.
Granted, not everyone is in the same position I'm in. However, many individuals who retire early from one job find that they'd like to work in another position. Even if it's part-time, they could still face this same benefit reduction.
You've probably heard that “a bird in the hand is worth two in the bush.” The idea is that a sure thing is preferable to something that's risky. And it's arguably the top reason for claiming Social Security benefits at age 62.
If you claim Social Security benefits as early as possible, you're guaranteed to receive a monthly check. Of course, the amount will be lower than if you waited until full retirement age. If you hold off on claiming benefits, though, there's a possibility that you won't live long enough to actually receive greater lifetime benefits from Social Security.
I have great expectations for my personal longevity. Yes, I realize that a horrible accident or dreaded diagnosis could come at any time. But I also know that I've always enjoyed good health. I don't engage in activities that could significantly lower my life span, such as smoking cigarettes, skydiving, or keeping a pet alligator.
Genetics should also be on my side. My grandparents, great-grandparents, and most of their siblings lived well beyond-average life spans. Several of them were still relatively healthy into their 90s.
I also think that there will be major healthcare advancements over the next couple of decades. Innovations in medical technology and personalized medicine could help increase longevity for many people.
Make your own decision
Every person has their own factors to consider in deciding when to claim Social Security benefits. The best decision for you could be completely different from the best one for me.
This is a decision, though, that most Americans will need to make at some point. It's not too early to begin considering what your retirement will look like. In the words of another classic rock song, “Don't stop thinking about tomorrow.”
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