3 Signs You May Want to Consider Early Social Security Benefits

If you’re retiring soon, you’ve probably started to think about when you should file for Social Security retirement benefits. You have a few options available. You could wait until your full retirement age, which is either 66 or 67 depending on your date of birth. At your full retirement age, you can start receiving benefits with no reduction or adjustment.

You could also delay benefits, especially if you don’t have an urgent need for income. The Social Security Administration allows you to delay benefits up to age 70 and will even increase your benefit if you wait. For every year you delay benefits, your payment will permanently increase by 8 percent. If your FRA is age 66 and you wait until age 70, you could see a cumulative 32 percent increase in your Social Security benefit.¹

Certainly, it pays to wait. However, that may not always be the right option. You also have the ability to take Social Security benefits as early as age 62. However, if you do so, you may see your benefits permanently reduced by as much as 25 percent.²

It might be tempting to take your benefits early, but it also may not make good financial sense in the long run. How do you know whether you should take Social Security benefits early? In most cases, a consultant or advisor may recommend you wait as long as possible. However, there are situations where an early filing could make sense. Below are three such situations. If these sound familiar, you may want to consider filing early.

1. You need the money.

Perhaps the most obvious reason to file for early benefits is you need the money to support your lifestyle in retirement. For many retirees, Social Security is their lone source of guaranteed retirement income. Also, many workers are forced to retire early due to job loss or medical issues.

If you fall into those categories, then it could make sense to file early. Waiting may increase your benefit. However, an increased benefit may not do you much good if you have no ability to support yourself while you are waiting to start your delayed benefit.

The best way to determine whether you need the money may be to develop a retirement budget. Project all of your expenses and your sources of income. If your expenses exceed your income and Social Security bridges the gap, filing early could be a wise decision.

However, also look at alternatives. Can you reduce some discretionary expenses to eliminate your gap? Could you work part-time, or generate income in some other way? Before filing early, make sure you have exhausted all other options.

2. You are claiming a Social Security spousal benefit.

Another reason to consider early Social Security benefits is if you are claiming a spousal benefit and your spouse is continuing to work. Social Security allows retirees to claim benefits based off of their spouse’s income rather than their own earnings history.

The reason for this is many spouses may have sacrificed their own careers in support of their partner. For example, a spouse may have stayed home to raise children so the other spouse could pursue a career. In that sense, the spouse who stayed home may not have an earnings history that could justify a substantial benefit.

If you plan on taking a spousal benefit and your spouse is continuing to work, it may make sense to take your benefit starting today. You can start generating Social Security benefits while your spouse continues to earn income. Then, he or she can file for benefits at a later date.

3. You have serious medical issues.

Another possibility is you may be suffering from medical issues which are so serious they threaten your life expectancy. If so, you may consider filing for benefits today rather than waiting.

While you may receive a reduced benefit, you may also receive benefits for a greater number of years if you file early. For example, let’s assume that you live to age 75. If you start benefits at age 62, you will receive a reduced benefit, but you will get those payments for 13 years. If you start benefits at age 70, you will receive a greater amount each year, but will only receive payments for five years.

Of course, it’s impossible to know when you will actually pass away. However, if you are suffering from serious medical issues, you may have some guidance as to how long you can reasonably expect to live. Use that information to project out how much total income you will receive by filing early rather than at full retirement age or even at a delayed age.

You may also want to consult with a financial professional. Here at Your Retirement Reality, we help retirees project their expenses, income and Social Security options. We welcome the opportunity to help you determine when you should file for benefits, and we welcome the chance to help you develop strategies for living a comfortable and enjoyable retirement. Download our complete Retirement Reality guide here.

¹https://www.ssa.gov/planners/retire/delayret.html
²https://www.ssa.gov/oact/quickcalc/earlyretire.html

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15608 – 2016/4/28