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When to Claim Social Security?

AMONG EXPERTS on Social Security, there’s a strong consensus that most folks should delay benefits to get a larger monthly check—and yet almost half of retirees claim Social Security at 62, the earliest possible age.

No doubt many retirees take benefits right away because they need the money, they’re in poor health or they haven’t given the issue much thought. What about those who have wrestled with the topic—and still insist that claiming at 62 is the right strategy? There are three main reasons people opt to take benefits right away.

First, they think the politicians will reduce Social Security or start means-testing benefits, so they should get whatever money they can now. It’s hard to predict what politicians will do, though it seems unlikely that any cuts would apply to existing retirees, because it would cause so much financial distress: For a majority of seniors, Social Security accounts for more than half of their income.

Second, some retirees claim Social Security early because they believe they can earn a higher return by taking benefits early and investing the money. That might be true if you invested in stocks. But given the greater risk involved, comparing stock returns and Social Security is like comparing apples and oranges. A more appropriate comparison is between Social Security and high-quality bonds. Based on that, you would be better off delaying Social Security, assuming you live to an average life expectancy.

Third, those claiming at 62 sometimes believe their spending will be higher early in retirement, when they’re more active, so it makes sense to claim benefits right away. Even if these folks are right about their spending, this is hardly a reason to claim Social Security early. Instead, if you want to spend more during your early retirement years, you could simply draw more heavily from savings.

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