Who should claim social security at 62? – The madman

Social security is an important source of income for retirement. As a result, many people do not retire until they decide to claim it. There are many valid arguments for waiting as long as possible before claiming your social security benefits, but it also happens that taking your benefits in advance makes more sense. Here are some situations where claiming early may be the best financial solution.

No. 1 Health is a problem

Social Security is designed to pay you the same amount of lifetime benefits regardless of the time of your claim. This is why people who take early retirement receive much less social security than if they had waited until the age of full retirement to claim and a lot more social security if they delayed in claim after the age of retirement.

SOURCE OF IMAGE: GETTY IMAGES.

The amount of benefits that are reduced or increased, however, is based on life expectancy tables which assume that everyone will live at the same average age. It just does not happen. Many people will live much longer than average and some will die much younger than average.

If longevity does not run in your family and your health has enough question marks to make you think you might not be beating the averages, then pretending early might be smart.

If you decide to wait until the retirement age, your social security benefits will no longer be cumulative unless you live until the late 1970s or early 1980s. you do not do it at this point, your life course might be smaller if you wait to claim rather than claim at age 62.

Graphic by author.

N ° 2: Your job security is threatened

According to Nationwide, most people plan to wait to claim their benefits, but the most common age to start receiving benefits remains at the age of 62. Why this gap? Often, it is because of an unexpected loss of employment.

Nearly one in four retirees told Nationwide that it is retirees who have been laid off or otherwise become unemployed.

If a loss of employment leads to financial insecurity, you may not have any choice but to apply early, especially if you are not eligible for income. pension. (Spoiler alert: most people do not do it.)

If you make a prepayment claim due to a loss of employment and you secure a job afterwards, you may proceed to a one – time recalculation, provided that you request that the claim be made. clock is reset within 12 months of the start of your services. You will have to return the benefits you have received.

SOURCE OF IMAGE: GETTY IMAGES.

No. 3: You can invest money

If you have another source of retirement income, such as pension income, then it would make sense to opt for the anticipated demand and investment route, especially if you are concerned that the financial situation of the Social security is not sustainable.

Social security is financed by the social security contributions of current workers, and these taxes have not made it possible to cover the amount paid to social security beneficiaries since 2010. This gap is bridged by using the security trust fund. social, but this fund is expected. dry in 2034, resulting in an overall 25% reduction in benefits for all.

Congress will probably act to avoid this result, but uncertainty may make you think it is wise to take advantage of your profits earlier and invest them yourself.

For example, suppose Jim claims social security at the age of 62, that he has reached retirement age at age 67 and that his social security benefits reach $ 1,000. . On the basis of the number of months he claims earlier, Social Security will reduce the total amount of his benefits by 30%. He will receive $ 700 a month.

Over the past 90 years, the average annual return of the stock market has been close to 10%. So suppose that he can get this annual return if he invests $ 700 per month in an S & P 500 index fund. If so, this strategy would give an account worth $ 133,874.37 dollars in 10 years and $ 481,110 in 20 years, thanks to membership or opportunity to earn interest.

It's fine, right? Absolutely. But before you decide that this social security strategy is right for you, you should know that this approach often does not make sense. For example, if you are younger than the retirement age, Social Security tests you for income. If you earn more than authorized (17,640 USD in 2019), it will retain 1 USD per $ 2 of revenue above the limit. Therefore, if you are working at a high-paying job, this strategy will not work. However, if you receive a pension at age 62, or if your income is close to or below the annual limit, this approach may make sense.

You should also know that social security income can be subject to income tax if your earnings exceed annual limits. For example, single filers with incomes over $ 34,000 and married filers earning more than $ 44,000 in 2018 will pay taxes on up to 85% of their income to Social Security. This must be taken into account before adopting this strategy.

There is also the risk that you will not earn the historical average return of the stock market. After all, there are many 10-year periods in which returns have been below the historical average and, due to recessions, many years in which investors have lost money on their investments. As we say, past performance does not guarantee future results.

Nevertheless, if you are among those who can make this strategy work, it could then increase your net worth and increase the value of the estate you leave your family, which would make it possible to claim at age 62.