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According to a July 2022 study from the National Retirement Institute, 42% of Americans plan to apply for Social Security early while continuing to work. This is up from 36% in 2021.
There are a lot of things you should know about early billing. Not only will your benefits be reduced, but they may be reduced even further if you are still working. When claiming spousal benefits and (eventually) survivor benefits, the sooner the spouse receives the less.
On the other hand, there will also be more cash on hand to meet immediate economic needs, which can be a factor in decision making. Here are some things to consider:
you get less
If you claim Social Security early, your benefits will be up to 30% less than if you claimed at full retirement age (66-67, depending on your year of birth). And from full retirement age to her 70s, benefits increase by an additional 8% for each waiting claim. It doesn’t look like much when compared month to month, but over time it can make a big difference.
“In our experience, people know their income is going down,” says Ryan Sala, a certified financial planner in Towson, Maryland. But people might be surprised when he measures the impact over 20 to 30 years. “Total, it could be over $200,000,” he says.
Everyone has a break-even age. That’s the age at which you can make more money later by receiving a large benefit than by receiving a small check for a few more years. That point depends on when you claim your benefits, but planners agree it’s around age 80.
“The sweet spot, which is from our financial planning software, is typically between 78 and 85,” Salah says. “That’s quite a range, isn’t it? Normally, if you’re going to live past 80, waiting would be more appropriate.”
learn more: A Beginner’s Guide to Understanding and Getting the Most Out of Social Security Benefits
Benefits may be reduced if you are employed
If you claim Social Security early and are still working as a freelancer or consultant, you may lose some of your benefits if your income exceeds a certain threshold. If 2023 is not the year he reaches full retirement age, he will lose $1 in benefits for every $2 he earns over $21,240. The equation becomes more lenient in the years you reach full retirement age, but you still need to keep that in mind.
Retirement benefits are based on the 35 years you’ve earned the most, so “theoretically, additional income could increase your payouts later,” said David Haas, CFP in Franklin Lakes, New Jersey. says. “Unless your income is unusually high, however, this rarely makes sense.”
read: How to Earn Higher Long-Term Investment Returns While Maintaining Peace of Mind
Your Decision May Affect Your Spouse
Your spouse (current or past) may decide to receive Social Security benefits based on your size, so your early Social Security decision reduces the amount your spouse receives. There is a possibility.
For example, consider the common scenario where the breadwinner gets Social Security early and then dies before his spouse. What will happen to the surviving spouses? What will they eat to survive? “Social Security is a tool,” says Haas, and delaying it can maximize that portion of your spouse’s retirement income.
See also Does Social Security exist for millennials and Gen Z?
You can receive it even if you are not 62, 67, or 70 years old
When you reach a Social Security milestone age, it’s tempting to think you have to make a decision. Claim at 62 or wait until 67 or he’s 70. But between the ages of 62 (the earliest age you can apply) and 70 (the age at which the benefits are maximal) there is plenty of breathable air.
“We want to remind people that they can do it at 64,” Salah said. “It’s okay to be 68. It doesn’t have to be a hard number that we all pay attention to.”
He says it also puts people at ease. They’re “thinking, ‘I don’t have to make a decision right now, I can wait,'” Salah said. “‘Wait another year and you’ll get a little more.'”
See also Social Security fiasco: Retirees bullied into paying back thousands of dollars in miscalculated benefits
You can withdraw your retirement benefits in advance.
Some people join Social Security early to delay the use of their retirement savings. However, this equation also works in reverse. In other words, every time you delay Social Security, you are given time to increase your benefits and are guaranteed to do so. Unlike the stock market, it is not certain.
“The bet is, ‘What if I live too long?'” says George Gagliardi, CFP in Lexington, Massachusetts. “Do the math,” he says when considering whether you should dig into your retirement savings. What happens to the numbers if you have to take out of your retirement savings now, but you get more from Social Security later?
On the other hand, if you don’t have the savings to cover the spread and can’t keep working, you may not have the option of joining Social Security early. “I’ve seen people embrace it, but the only time I didn’t discuss it was when they desperately needed it,” says Gagliardi.
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Kate Ashford of CSA® writes for NerdWallet. Email: kashford@nerdwallet.com. Twitter: @kateashford.
