In the face of inflation, looming recession, and uncertainty surrounding the future of Social Security, many Americans are considering claiming their Social Security benefits earlier than their full retirement age. This decision, while allowing them to continue working, is influenced by various factors. Let’s investigate the reasons behind this trend and weigh the advantages and disadvantages.
The Numbers Behind the Decision
Recent data reveals that 42% of Americans intend to apply for Social Security before reaching their full retirement age and continue working. This is a significant increase from the 36% recorded in 2021. While individuals can start claiming their Social Security benefits as early as 62, this choice can lead to a monthly benefit of up to 30% less than if they waited until their full retirement age (between 66 and 67, depending on birth year). However, those who delay their claim beyond their full retirement age can boost their Social Security payment by 8% annually, maxing out at age 70.
To put this into perspective, as of February 2023, the average monthly Social Security check for retirees is $1,693.88. In contrast, a 62-year-old retiring this year would receive an average of $1,247.40, while waiting until the full retirement age of 67 would increase this to $1,782. Over two decades, this monthly difference of $534.6 could accumulate to over $128,000 in retirement income, excluding cost-of-living adjustments.
Why Some Choose the Early Route
Claiming benefits early isn’t necessarily a misstep. Many individuals opt for early Social Security benefits due to unforeseen circumstances such as involuntary retirement, age-related hiring biases, health issues, or the responsibility of caring for an ailing family member.
Understanding the Break-Even Point
The decision to claim early or wait revolves around the “break-even” point. At this age, the total benefits from claiming at full retirement surpass the cumulative amount from an early claim. Typically, this point is around age 80. For instance, using current average benefit figures, someone who starts collecting at 62 would accumulate over $254,000 in 17 years. In contrast, waiting to claim the higher full-retirement benefit would yield slightly more by 2040, with an additional total cash of over $2,000 (not adjusted for inflation).
Tax Implications to Consider
While Social Security benefits aren’t inherently taxable, claiming them early while continuing to work can make some of these benefits taxable. For instance, single tax filers with a “combined income” exceeding $25,000 will be taxed on 50% of their benefits, rising to 85% for incomes above $34,000. For joint filers, these thresholds are $32,000 and $44,000, respectively.
Final Thoughts on Early Social Security Claims
The trend of claiming Social Security in the early 60s is on the rise, driven by various personal and economic factors. Every individual’s retirement journey is unique, making assessing personal needs and potential tax implications crucial when deciding on Social Security claims.
Guidance for Retirement Planning
Determining the right time to claim Social Security is just one facet of retirement planning. Engaging with a financial advisor can provide clarity on all aspects of retirement. If you’re yet to connect with an advisor, tools are available to match you with professionals tailored to your needs. Remember, planning for retirement is a comprehensive process, and making informed decisions can set you on the path to a comfortable and secure retirement.