Ask any financial expert when you should apply for Social Security benefits, and there’s a good chance they’ll tell you to wait as long as you possibly can.
The Social Security Administration’s full retirement age (or the age at which you can collect 100% of your benefits) for people born in 1960 or later is 67 years old, and the earliest you can start taking Social Security benefits is age 62. But if you choose to take benefits early, they’ll be reduced based on the number of months you have before you reach your full retirement age.
For example, if you turn 62 in 2017 and have a full retirement age of 67, choosing to file for benefits now will reduce your benefits by about 30%. If you retire only one year early at 66 instead of 67, your benefits will only be cut by about 6.7%.
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So in most situations, it’s ideal to wait as long as you can to claim Social Security retirement benefits — and yet 57% of American men and 64% of women claimed benefits before reaching full retirement age in 2014.
Claiming your benefits early just because you’re sick of working and ready to retire may sound like a good idea now, but it’s generally not the wisest idea. However, there are a few scenarios in which claiming benefits early makes perfect sense.
1. You’ve been forced into an early retirement
Roughly two-thirds of Americans retire before age 66, and about half leave the workforce between age 61 and 65. While some of those people retired on their own terms, others were doubtless forced into retirement.
Sometimes, you’ll face an unexpected job loss just a few years before you were planning to retire, and you’re left with two options: Try to find another job you’ll only hold for a few years, or retire early. If you’re struggling to make ends meet or can’t find another position, you may have no other option than to retire earlier than you’d planned.
If you’re forced into retirement because of health issues, though, there’s another option: You can apply for Social Security disability benefits , and if you’re approved, you’ll receive the same amount you would have received had you retired at your full retirement age. Then once you reach the full retirement age, those benefits are converted into retirement benefits.
2. Your spouse can wait a few more years to retire
Even if you’re not struggling to pay the bills, if you’re married and your spouse is also working, you have the option of taking one person’s benefits early while the other continues to work.
When deciding who should be the one to continue working, it makes more financial sense for the person with the higher income to wait to retire, because they’ll be contributing more to Social Security than the person who’s earning less. This means their retirement benefit will be bigger and will grow even more through delayed-retirement credits.
You still won’t receive as much from Social Security as you would if you both waited until you reached full retirement age (or even later), but if you’re itching to retire now (or if you’re forced to retire early), it’s not such a bad idea for one person to take benefits early. You may reduce your benefit by a couple hundred dollars per month, but ideally your spouse’s delayed benefit will more than make up for that in the long run.
3. You’ve planned well and don’t need the extra cash
If you find yourself nearing retirement age with a healthy nest egg, give yourself a pat on the back! There’s no sense in continuing to work just for the sake of working (unless you enjoy it and don’t want to leave the workforce yet). So if you feel you’ve saved enough on your own and don’t need the full Social Security benefits, you may choose to sacrifice some of your benefits for the chance to retire early.
The tricky part will be deciding whether you have enough saved for retirement to forgo the full benefit amount. Your best bet is to talk to a financial advisor to discuss your situation and determine how much you’ll need to retire comfortably.
You can also calculate your estimated Social Security benefits to see how much you’ll receive if you retire now compared to what you’ll get if you wait a few years, then decide whether the extra amount is worth waiting for.
Social Security benefits are a great reward during retirement, but they can be confusing. And as tempting as it is to quit your job and retire early, most of the time it’s best to hold off in order to earn more money later. In some situations, though, you’re actually better off taking the money early and making the most of what you’ve got.
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