If you are approaching or already over 50, you have probably given some thought to your retirement finances. Social Security is typically one of the first sources of retirement income that comes to mind. When it comes to Social Security, a financial question that arises is which of the following 3 options to choose:
- Take Social Security early at age 62
- Take Social Security at your full retirement age (FRA)
- Take Social Security at age 70
Whenever we meet someone who is clearly over 50, or already retired, we ask their opinion. At a recent holiday gathering, we met a 70 year old gentleman who knew my parents. As we began to chat, he mentioned that he retired at age 56, and never looked back! My interest peaked, and I asked how he was able to retire so early. He said rental income from investment properties enabled him to retire early. He also mentioned that as soon as he reached age 62, he claimed his Social Security. I asked why he didn’t wait until his FRA. He said he calculated that his “break-even point” at age 78. I asked what he meant by a “break-even point,” and he said that if you live beyond your break-even point, you began to lose money compared to waiting to claim Social Security at your FRA. Based on how long males live in his family, he didn’t know if he would live beyond 78. In addition, he wanted to receive the Social Security checks while he was young enough to travel, socialize, and enjoy quality of life.
Several years ago, I worked for a gentleman who was clearly in his 60s. He told me that he began collecting his Social Security at age 62, even though he planned to work another few years. I asked him if the penalty for continuing to work was prohibitive. He said no. He said he ran the numbers, and by investing his Social Security check every month, he more than made up for the “continuing to work” penalty and the reduction for taking his Social Security early. The financial media and the Social Security Administration encourage Americans to wait for their full retirement age to claim, but each of us has to “run the numbers,” assess our financial situation, and make our own decision.
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