When It Pays to Claim Social Security Early

Bill Gottdenker defied the advice of financial experts and claimed Social Security at age 62. The decision helped him and his wife travel while still healthy. More than a decade later, they have enjoyed a two-week trip to Europe every fall that's funded by their benefits.

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"We looked at it as something that would provide us with a good quality of life," says Gottdenker, 74, of Mountainside, N.J. "We had fun."

An ironclad rule of financial planning is to wait as long as possible to claim Social Security. But that advice is based on actuarial math, not real life. Gottdenker's experience illustrates the other side of the decision: In some circumstances, you may be better off claiming when you're first eligible, at age 62, or at least in your early 60s when you're healthy enough to fully enjoy retirement.

"We've got the analysis part, the unemotional dollars and cents, and we have the human element of what makes us feel comfortable," says Melody Evans, a certified financial planner and vice president wealth management advisor at TIAA in Portsmouth, N.H.

Purely by the numbers, it makes sense to delay your first benefit check. Those born in 1960 or later who claim at 62 lock in benefits that are 30% less than what they would be at their full retirement age of 67, when you can claim 100% of your earned benefit. If you can hold off until age 70, your benefit grows to 124% of what it would be at 67. You don't get any step-up in benefits at 67 or 70 if you claim at 62—your monthly check is permanently reduced.

But the math isn't ideal for everyone, especially retirees like Gottdenker, who have enough of a cushion that Social Security won't make or break their financial security. They will likely have enough money either way, so they can choose what feels right, Evans says. A financial advisor can run projections and determine how much qualifies as "enough" to fund your living expenses, goals, and unpredictable needs like long-term care.

Having a steady paycheck that's not dependent on the stock market can allow many retirees to spend on fun activities that they'd been looking forward to, and that they might otherwise hesitate to pursue. And if you wait until you're 70 to travel, you might find that health issues slow you down sooner than anticipated.

Many older adults don't have much choice about when to claim. They don't have enough savings, so they claim benefits as soon as they retire. Of the 2.7 million people who filed for retirement benefits in 2021, 29% were 62, according to a Congressional Research Service analysis of Social Security data. Nearly 10% were 70 or older. (There is no financial benefit to waiting beyond 70 to claim.)

To aid in their decision, many retirees conduct a break-even analysis, which calculates the age at which you'll come out the same if you claim early and receive more smaller payments or if you claim later and get fewer larger payments. For many, the break-even point is in one's early 80s: Live past then, and you'll receive more in lifetime benefits by claiming later. Die before then, and your lifetime benefits will be larger if you claim earlier.

But the break-even analysis doesn't fully account for Social Security's role as longevity insurance, some experts say. No annuity on the marketcan buy you as much inflation protection as Social Security offers with its annual cost-of-living adjustments.

The decision of when to claim ultimately involves factoring in other sources of income, expected health and longevity, and the sheer fact that it may be better to live larger now than in older age.

Bryson Roof, a certified financial planner at Fort Pitt Capital Group in Harrisburg, Pa., has clients who want to visit every national park outside of Alaska and Hawaii, and they want to claim Social Security at 63 to help fund their travel. To make up for income shortfalls by claiming early, they plan to maintain a 100% stock allocation in their retirement portfolio during the 10 years they'll travel. During that time, they plan to live off Social Security and a pension and let their retirement funds grow untouched.

"They know if they live long, it's probably not the most dollar-smart approach," Roof says. They're willing to make the trade-off to live their retirement dream.

Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com