Reasons Propelling Early Retirement from Social Security Before the Age of 70
Reasons Propelling Early Retirement from Social Security Before the Age of 70
If you've done some investigation into your future retirement income, you likely know that delaying the claim of Social Security benefits increases the size of the monthly payments. While 62-year-olds, who are the youngest eligible age to claim, receive checks that are barely larger than half of those received by those who wait until the maximum age of 70 to file, the general advice is to postpone claiming benefits as long as possible.
However, there are reasons to consider claiming Social Security benefits before reaching the age of 70. For instance, I'm strongly considering doing so as soon as I can. Here are a few reasons why you might want to join me in this endeavor.
1. Maximizing gains before any potential cuts
It's crucial to acknowledge that there are no definitive plans to cut Social Security presently. Yet, there's a pervasive bipartisan agreement that the program cannot continue its current trajectory.
Some forecasts suggest that without appropriate legislative action, a reduction in payments of approximately 20% will be required by mid-2030s to sustain the program. Since this reduction would occur before I reach the age of 70 - albeit not by a wide margin - I would unfortunately miss out on this opportunity.
If partial steps are taken to push the insolvency can back, I will at the very least start collecting benefits before any cuts are implemented. While I would still be subject to any potential future reductions in benefits, at least I would enjoy a few year's worth of collecting the full amount.
2. I have no intention of completely retiring
Although I can reasonably expect to slow down as I age, I doubt I'll ever lose interest in engaging in productive work that pays a wage.
There's a disadvantage to such a strategy. Namely, taking on work-related income after you've already started receiving Social Security retirement benefits could lead to reductions in those payments. Specifically, if you haven't reached your full retirement age (or FRA) and earn more than the Social Security Administration's specified annual income ceiling (it's $22,320 in 2024), your Social Security benefits are decreased by $1 for every $2 excess income. If your income exceeds the ceiling significantly, you may even become ineligible to collect any Social Security benefits that year.
The silver lining is that the Social Security Administration takes into account the withheld benefits and boosts your future benefits accordingly. Furthermore, if you're already above the FRA of 66 to 67 years (depending on your birth year), your benefits won't be impacted regardless of your subsequent earnings.
The cherry on top: If by chance my income increases more than usual, the Social Security Administration will adjust my future benefits to reflect this higher income. I will still be paying FICA taxes on the increased income.
3. I can invest the funds I don't require immediately
Lastly, I plan to put any Social Security income I collect early into investment.
The rate of return on your contributions to the Social Security fund is consistent with the average US Treasury yield, which ranges from 2% to 5%, depending on the year. You won't find such figures endorsed by the Social Security Administration like you would from a mutual fund, investment advisor, bank, or brokerage firm. The Social Security program doesn't operate using such a framework. The beneficiary payments are mainly funded by FICA payments from pre-retired workers, and neither group maintains a consistent size or predictable growth rate.
In my opinion, I'm more likely to earn a slightly better rate of return by investing the benefits I receive now than by waiting until I turn 70.
Keep it personal to you
My circumstances might not apply to everyone. For example, I can consider scaling back on my workload rather than retiring entirely, but not everyone has an option like that.
I'm also building a retirement nest egg for long-term growth investments, even if the market experiences a downturn a few years before I reach 70. I should have sufficient work-based and Social Security income available when I do reach this age to navigate any potential market turbulence if necessary. Others may not share this luxury.
Regardless, don't simply assume that delaying your Social Security payments as long as possible is the best course of action. There's a good argument to be made for claiming Social Security benefits early, mainly because of the increased flexibility provided by receiving the money sooner rather than later. The key is deciding how you intend to utilize the additional cash channels.
- Given the potential for Social Security benefit reductions in the future, claiming my benefits as soon as I can allows me to maximize the amount I receive before any cuts, ensuring I have more money for retirement.
- With my plans to continue working beyond retirement, claiming Social Security benefits early could help me navigate the potential reduction in my Social Security income if I exceed the annual income ceiling, as the Social Security Administration would boost my future benefits accordingly.