Many Americans begin thinking a lot about retirement as they approach their early 60s. When to claim Social Security retirement benefits is an important factor in determining an exact retirement age.
Financial advisors would likely tell you to at least wait until your full retirement age (FRA) to collect Social Security. And that's great advice for most people. However, there are some exceptions. Here are three compelling reasons to take Social Security early.
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1. You're ready to retire and the early retirement penalty isn't an issue for you
Let's start with the most pleasant reason to collect Social Security benefits early. If you're ready to retire and the early retirement penalty isn't an issue for you, receiving Social Security benefits before your FRA could make sense.
It's important to understand exactly what the early retirement penalty is, though. Your Social Security benefits will be reduced by five-ninths of 1% for each month before you reach your FRA for up to 36 months. If you begin receiving Social Security more than 36 months before your FRA, your benefits will be reduced by five-twelfths of 1%. If your FRA is 67 and you take Social Security at age 62 (the earliest age allowed), your benefits will be reduced by 30%.
You might plan to continue working part-time to make up for the early retirement penalty. There could be a gotcha with doing so, however.
The Social Security Administration (SSA) will deduct $1 from your benefits for every $2 you earn above an annual limit if you're under your FRA for the entire year. For 2024, that annual limit will be $22,320. During the year you reach your FRA, the SSA will deduct $1 in benefits from every $3 earned above a higher annual limit. In 2024, that limit will be $59,520.
There is some good news: You'll begin to get the money withheld earlier when you reach your FRA. The bad news is that you might not pocket as much as you had hoped to during your early retirement years.
Even with these factors in mind, though, some individuals will still be able to retire comfortably with lower Social Security benefits than they'd receive if they waited until their FRA.
2. You face a financial emergency
Now let's turn to a not-so-pleasant reason to take Social Security early. If you face a financial emergency, Social Security benefits (even if they're reduced) could be a lifesaver.
For example, let's say that you lose your job before reaching your FRA. You try hard to find another job but are unsuccessful in doing so. Tapping your retirement savings isn't enough to make ends meet. In such a scenario, filing for Social Security early could be your best option.
However, some financial emergencies can be resolved without beginning to receive Social Security benefits early. It's wise to explore all your alternatives before making a decision.
Also, keep in mind that if you change your mind about taking Social Security early, you may be able to withdraw your Social Security claim if it's been less than 12 months since you were first entitled to benefits. You'll have to submit your request in writing to the SSA and repay all of the money you previously received.
3. You have health issues
Another compelling reason to receive Social Security retirement benefits before your FRA is if you have health issues. This is especially applicable if you expect your health condition(s) to prevent you from living long enough to reach the break-even point where the cumulative amount for claiming benefits later exceeds the cumulative amount from taking them early.
Don't overlook the possibility, though, that your health issues could make you eligible for Social Security disability benefits. When you reach your FRA, your disability benefits will automatically convert to retirement benefits.
