Getting Out Early

A reader asked whether it is better for her to start Social Security benefits at 62 or wait until age 66. The answer really depends on many factors, including her health, her family’s typical longevity and, well, whether she looks both ways when crossing the street! Seriously, though, according to the actuaries (the math scientists in the insurance business), taking your Social Security payments at age 62 or at the normal retirement age of 66, has no effect on the total that you’ll receive over your remaining lifetime. That’s a concept, however, that applies to millions of people as a group, not necessarily to you as an individual.

Let’s say you are born in 1950 and would have a normal Social Security benefit commencement age of 66 (for someone born from 1943 to 1954). Further, let’s say you would normally receive a monthly benefit of $2,000 at age 66, but you decide to take early commencement at age 62. According to the Social Security Administration website (www.socialsecurity.gov), you’ll get hit with a 25% reduction at age 62. This means that your benefit would be reduced to $1,500 per month at age 62. At some point in time, according to theory, the totals in each scenario will equal out. So, based on that theory, you decide to wait till age 66 and then apply for your benefit. Then, you decide to celebrate your decision and gleefully run out to Ben & Jerry’s for a nice big sundae. In your glee, you neglect to look both ways and don’t see the bus coming.

Total received: $0! Had you decided to take the age 62 benefit, you would have received $72,000!

As time passes, the difference becomes less significant. At age 70, you would have received $144,000 since age 62, vs. $96,000 since age 66. At around age 78 it balances out and having started payments at 62 looks less advantageous.

None of this, however, takes into consideration that you might not have earned a salary from 62 to 66, nor that you might have invested any of the proceeds.