Social Security provides the cornerstone of most Americans' retirement plans, with over half of eligible retirees relying on it for more than half their income. Your benefits depend on two primary factors: your annual lifetime earnings and the age at which you begin collecting. You can start collecting as young as age 62, and despite the fact that starting that young results in the lowest monthly check you can receive, it's by far the most common age to begin.
If you wait until your full retirement age, your benefits are larger and you get more flexibility in your ability to earn money elsewhere. If you wait until age 70, your monthly benefits are the highest. Given the trade-offs between your age when starting and your benefit level, it raises a key question: Why do so many people claim Social Security benefits at age 62? Here are four key reasons they choose to do so:
No. 1: They're no longer working
Perhaps the biggest reason people claim at age 62 is that they're frequently done working. According to the Bureau of Labor Statistics, the labor-force participation rate drops off significantly above age 60, with only around half of people 62 to 64 still actively working or looking for work.
Whether that's because they've been restructured out of jobs, are just done working, or their health no longer allows them to work, the prospect of a steady income from Social Security is tempting. Note that it usually only makes sense to collect Social Security at age 62 if you're not working, because of the substantial penalty that comes from collecting a paycheck and early benefits at the same time.
No. 2: They really need the money
Another reason people claim at 62 is that they need the cash to cover expenses. The median household net worth (excluding the value of the house itself) for a family headed by someone age 60 to 64 is around $106,000. That's not enough to cover even a bare minimum lifestyle in the United States throughout a typical retirement at a sustainable level.
As a result, retirees facing a fairly long-term future with a fairly small nest egg look at their Social Security check as some much needed high-reliability income. Even a reduced check can often be enough to eke out a modest lifestyle in parts of the country with low costs of living, particularly for seniors who are relatively healthy and whose children are independent.
No. 3: They're worried about their own health
The old saying that "You can't take it with you" is particularly true for Social Security. If you're single, your Social Security benefits typically end when you pass away. If you're married, a surviving spouse will generally receive only the benefit level of the higher-earning spouse once the other spouse dies. As a result, seniors not expecting to enjoy a long and healthy retirement often choose to take Social Security early in order to get something out of the program.
There's also a case to be made that by the time you break even on your Social Security benefit by waiting to receive a larger benefit, you'll likely be around 80 or so. By that point, even if you're healthy now, you might have started to slow down enough that the extra money each month won't be as meaningful for you. So why not take the money earlier, while you're still young and healthy enough to enjoy it?
No. 4: They're decent investors who want to help their own money last longer
One of the best-case scenarios for taking Social Security early is that it provides a level of high-certainty, inflation-adjusted income for its recipients. If you're living off your investments, you need at least some of your money in assets that are less aggressive and volatile than stocks. How much you need in those other assets depends in large part on how much you need from your portfolio to cover your expenses.
If you take Social Security's guaranteed income into consideration, it represents that much less you need to convert out of stocks to cover the early years of your retirement. With that much more of your nest egg invested for the long term, you give yourself a fighting chance of having your money last that much longer or provide that much better a lifestyle.
Ultimately, it's your choice
Social Security's benefits are calculated so that the typical recipients are likely to get about the same total benefit throughout their lives no matter when between age 62 and 70 they start collecting. As long as you're no longer working, feel free to start any time within that window that makes sense for your personal circumstances. You've worked long and hard to qualify for your benefits, so put them to use as part of your overall plan to enjoy retirement.
