Weighing the Pros and Cons of Taking Social Security at Age 62
You should delay taking Social Security until you reach age 70.
Unless, of course, you shouldn't. Or can't.
Yes, my team at Keen Wealth generally advises folks to delay their benefits as long as possible so that those checks will, eventually, be bigger. But, like just about every detail of your comprehensive financial plan, timing your Social Security benefits is a complicated decision that depends on your unique situation and your specific goals for retirement.
On today's show, we discuss some questions we typically ask folks who are considering taking their Social Security benefits as soon as they are eligible at age 62.
1. Are you still earning income?
The Social Security Administration sets limits on how much income you can be earning while still receiving your full benefits. In 2024, that limit is $22,320. For every $2 you earn over that limit, your benefits are reduced by $1.
So, it usually doesn't make sense for a 62-year-old who's working full or part-time, or earning above that minimum from their investments to take Social Security right away.
Once you reach full retirement age, you can receive your full benefit no matter how much you're earning. But a portion of your benefits could be taxed as income, depending on which tax bracket you fall into based on your other earnings.
2. How might your earnings change in retirement?
If you're 62 and your nest egg is mostly cash, you might be living comfortably while earning little to no income. Since your benefits won't be penalized, you might consider taking them early.
But what happens if, a couple of months later, you decide to take a part-time job, either because you want something to do, or because something unexpected happens and you need the extra money to make ends meet?
If you start earning above the income limit in the same 12-month period you started taking Social Security, you have the option to repay the benefits you've received and start from scratch at a future date.
You could also keep what you’ve already collected and tell Social Security to stop sending you checks so that you won't be penalized going forward. However, in that case, you're locked into the benefit rate from when you started taking Social Security, even if you don't start taking checks again until you reach full retirement age. So, you're going to miss out on the approximately 8% per year that your benefits would have increased if you'd never taken Social Security in the first place.
3. What's your tax outlook?
There are situations where a 62-year-old who is earning above the income limit might be willing to pay the penalty and take reduced benefits anyway. That extra cash might be necessary to pay the bills every month, or they might need it to achieve another financial goal, like traveling while they're still young enough to enjoy their money or contributing towards a child’s education.
My team will carefully weigh those benefits against the negatives we talked about above, as well as some important tax considerations. Folks who are already in higher tax brackets might get bumped into an even higher bracket that could negate the value of their benefits come tax time. That bump might also limit some of your options around maximizing your retirement accounts for the long haul, such as making strategic Roth IRA conversions.
4. How is your health?
A terminal medical condition might also make a 62-year-old consider taking Social Security while they're around to use their benefits, or if they need those benefits to pay for their care. However, an ill person who's married might decide not to take Social Security so that, if they do pass, their spouse will receive what their full retirement age benefits would have been.
As I mentioned in a recent blog post, retiring early is a goal that's become more and more common among the folks we work with at Keen Wealth. And it can be an achievable goal if every piece of your comprehensive financial plan -- including Social Security -- is being coordinated by a professional who understands you and the retirement you want to enjoy. Make an appointment to meet with a Keen Wealth advisor who can walk you through your Social Security options and help you make the best choices for your personal plan.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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