A possible case for beginning your Social Security benefits at age 62

Let’s keep in mind that Social Security is insurance, not an investment. It provides inflation adjusted lifetime income, survivor and dependent benefits and disability benefits, even ex-spouse benefits.

Many people are concerned with getting their money back, breaking even, but that’s not how insurance works. Some Americans- very few – will collect nothing while others may live well beyond life expectancy and provide survivor benefits to multiple people.

When to begin to collect SS benefits is part of a great debate. Many people see maximizing benefits by delaying to age 70 as the way to go. Others not wanting to be hit with a perceived reduction in benefits, say the full retirement age is the way to go.

It all depends so much on the individual and their circumstances. However, starting benefit at age 62 or any age before age 70 has some advantages in my opinion.

Let’s look at an individual earning $100,000 a year. He can begin Social Security benefits at age 62 or delay to age 70.

At 62 the monthly benefit is $1685 and at 70 it is $3046 per month – a difference of $1361. Both benefits adjust for inflation. Needless to say, living to age 70 is part of the equation.

If it is feasible to delay to age 70, we can assume the benefit was not needed as income before age 70. Others may find it a necessity to begin benefits as early as possible.

What could happen if instead of delaying, the individual starts the benefit at age 62 and invests it each month for the next 96 months.

Assuming a 8% annual return on the investment, the person would have $226,993 in investments at age 70. Invest the reduced Social Security benefit at 3% in municipal bonds (tax-free) and you could have $183,023.03.

Even with zero return you would accumulate $161,760.

But think of this, that $226,993 could generate $1,324 in additional monthly income at age 70 assuming a 7% return hence the $226,993 provides not only survivor income from earnings, but a lump sum for any purpose desired.

Invest the $226,993 in tax-free bond funds and you could earn $567.48 tax free monthly at 2023 rates if you prefer.

Of course, all these numbers are estimates with many variables

For some retirees who can afford to do so, delaying the start of benefits provides higher income – and survivor benefits – in later years, all in the form of an annuity payment so the value is based on living and life expectancy.

Is my idea feasible or practical? For many retirees I think so, but I also asked an expert to give his opinion and the other side of the story.

Here is what Adam M. Grossman the founder of Mayport, a fixed-fee wealth management firm had to say.

I think that your argument is logically sound. I think what you’re saying is it would be better to claim at 62 and simply invest those dollars. That way, by age 70, you’d have a six-figure sum from which you could withdraw, and it could be left as an inheritance. That makes sense. So why would someone like me still recommend that a retiree wait until 70? I think it’s more about the behavioral considerations.

1. Only the most disciplined (or very high net worth) person will save those dollars.  

2. Investment returns aren’t guaranteed.  There could be a bad patch between 62 and 70.

3. Because of the risk of negative returns, you’d need to put some effort into managing that portfolio.  In contrast, Social Security requires no thought or effort (or worry).

4. Social Security provides longevity insurance.  If a retiree lived to 95, for example, he might be more secure with a much larger SS check than having that portfolio which, as noted, he’d have to worry about managing.

All that said, this is certainly a subjective area. I’ve had readers send me incredibly detailed spreadsheets to support arguments in both directions (62 and 70).

When will you begin your Social Security benefits and what will you do with the money?

Me? I started SS at my full retirement age (as did my wife) while still working and invested the monthly payments and have reinvested the tax-free interest since 2008. At some point that monthly income may be used to offset the impacts of inflation, additional income for my survivor while the account balance will be part of my legacy.

What is the right answer? Only the answer that is right for you and your needs.