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It doesn’t always make sense to tie at 62, but there are some common situations where it does. Image: larry1235/Shutterstock.com
By: Dallen HawsAs a federal employee, you have 3 main sources of income in retirement: TSP, your FERS pension, and Social Security.
And your Social Security payments can be large or small depending on how you start your benefits.
In my opinion, choosing when to start receiving Social Security is one of the most important financial decisions you make during retirement.
We want to do it right!
While there is no “best” age to receive benefits that works for everyone, these are some of the most important reasons to start receiving benefits as soon as possible (often at age 62).
Note: It doesn’t always make sense to draw at age 62, but the focus of this article is the most common situations in which it does.
1. Health problems?
If you have any serious health problems that affect your life expectancy, it may be a good idea to apply for Social Security as soon as possible. Your Social Security benefits stop being paid when you die*; Therefore, if you die before you start collecting, you will lose any Social Security payments entirely.
*Your benefit may pass to your spouse/children in some situations. These benefits are called survivor benefits for spouses and family benefits for children. But if you are single and don’t have children, you don’t have to worry about them.
2. Give me the money!
Another reason to collect Social Security at age 62 is if you need extra income right now.
It would be nice if we all had the financial resources to not rely on Social Security, but real life is never that simple.
Many people simply cannot afford to receive Social Security at a different age because they need the income now.
3. Take it now and invest it
Many people suggest taking out Social Security right away even if you don’t need the money and investing it.
On paper, this usually looks really good. If you delay Social Security, your benefits will increase by 5% to 8% depending on your age and the stock market has grown about 10% a year on average for the last 100 years.
So if you take your profits, you make 10% on the market, then you’re making money compared to the 5%-8% they would have given you.
But I would be cautious before implementing this strategy in the real world for two reasons.
Number 1, the stock market averages 10% annually, but that doesn’t mean that will happen every year. Some years are great and some are terrible. Maybe 10% is not always better than a guaranteed 5%-8%.
Number 2, in real life people usually spend all the money they receive. It takes discipline to start Social Security and not spend it. Most people would probably find it difficult to set aside money and invest it in high-quality investments.
4. Who do you leave behind?
If you are married or have dependent children, your benefits don’t just affect you.
In the event of your death, a surviving minor, spouse, or disabled child can receive money from Social Security based on the amount of their benefits. Depending on the age of your surviving spouse, you could receive between 71% and 100% of your benefit amount. If you have a disabled child, he may also receive a portion of her benefits.
Bottom line: What you receive after you die is often based on what your benefits were while you were alive. If you delay your benefits, then your benefit will be higher, which will increase what they receive after you.
Therefore, if there are people who depend on your benefits, there tends to be more reasons to delay your benefits.
Conversely, if you are not married and have no dependent children, there may be no reason to delay your benefits past age 62.
5. But I made less money
If you’re married but earn much less than your partner, then taking Social Security at age 62 may make more sense for you. This is the case for two main reasons.
Number 1, your spouse (the higher earner) will get more for your money when you delay your benefits simply because your benefits started out higher. So, if one of you is going to be late, it should often be the one earning the most, not the one earning the least.
Number 2, as a person with a lower income, you may be eligible to receive spousal benefits. This benefit is based on your spouse’s (whoever earns more) benefit amount, but you can only receive it if you have already started receiving your own benefits.
Final thoughts
Social Security is a massive program with many rules and exceptions.
But in an effort to keep things simple, these five situations above are the most common times when it makes sense to profit right away.
It’s up to all of us to do the research until you feel confident that your choice makes sense for you.
Dallen Haws is a financial advisor dedicated to helping federal employees live their best lives and plan for an amazing retirement. She hosts a podcast and YouTube channel about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.
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