Apr 18, 2023
When the idea of retirement was first introduced 140 years ago, most people weren’t expected to live to the ripe old age of 70.
And while the concept of life after labor has changed a great deal over time, the ideal retirement age has often been regarded as 65.
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That being said, what’s ideal for one person might be less so for another. In the U.S., you can retire as early as 62 and start claiming your Social Security. And as of 2021, according to the Congressional Research Service, about 30% of Social Security applicants were 62.
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But is it right for you? A 2022 paper reveals that retirement benefits taken at age 70 have a value of 76% more than those that start at 62. While there may be some good reasons to reitre early, that decision can have a significant impact on your finances.
The choice between packing it in at 62 or waiting until 65 (or even 70) is complicated and personal, but here’s what you need to know when weighing your options.
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Cons of claiming early
Surely after decades of working, you’re asking yourself, “Is 62 really early if the law permits it?” It is once you factor in the drop in long-term income. According to the Congressional Research Service, those who claim at 62 years old will see around a 30% reduction in monthly benefits compared to those who delay until full retirement age.
Depending on when you were born, full retirement age for 100% benefits lands at about 66 or 67. But if you hold out until age 70, your benefits come in even higher. In fact, you can receive an 8% boost for every year you wait.
Let’s say you were born in 1960. If you started your benefits in 2012 at age 62, your monthly income would be 30% lower compared to full retirement age. Instead of $1,000 per month you’d receive $700, the Social Security Administration explains.
But if that same person waits until full retirement age — 67 at present — they’ll get that whole $1,000; each year until 70 adds that extra 8%. Monthly, that’s $1,260 for an annual total of $15,120, compared to the $8,400 received at 62.
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Pros of claiming early
The above scenarios, of course, assume good health and a longer lifespan. But if you or your spouse experiences a disability or severe health problem, early benefits would definitely help defray costs.
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Then there’s the question of debt. An extra 8% a year may pale in comparison to the interest racked up by unsecured, high-interest credit card debt where you delayed the payoff. Thus entering retirement debt free must be weighed against any decision to defer benefits.
The wisdom of collecting Social Security early also depends on the type of work you do. Retiring early from a backbreaking assembly line position, for example, is a much different matter than sticking it out in a laid-back desk job. It can also provide a gentle offramp as you exit gradually from everyday work; the lost percentages might not hurt you so much if you’re still a part-time wage earner.
Read More: Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Never too early to consult an expert
If you are still unsure of when to claim Social Security and what is best for your finances, working with a financial adviser is often a smart move — and it’s better to get started sooner rather than later.
According to data by the Federal Reserve Board, only 40% of non-retirees feel confident about their retirement savings — clearly many Americans could use help navigating their finances and making sure their assets are protected.
Since many people find it overwhelming to find a suitable and trusted professional, there are free online services that are designed to match you with a pre-screened financial advisor who will meet your unique needs for the retirement you've always dreamed of.
And at the end of the day, remember: You are working towards a smart retirement, too.
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Amy Legate-Wolfe is an experienced personal finance writer and journalist. She has a Bachelor of Arts in History from the University of Toronto, a Freelance Writing Certificate in Journalism from the University of Toronto Schools, and a Master of Arts in Journalism from Western University. Amy has worked for Huffington Post, CTVNews.ca, CBC, Motley Fool Canada, and Financial Post. She is skilled at analyzing trends and creating content for digital and print platforms. In her free time, Amy enjoys reading and watching British dramas on BritBox. She is a mother and dog-mom to a Wheaten Terrier.
