Deciding when to claim Social Security can be challenging. You can start taking benefits at 62, but you won’t get full benefits unless you wait until your full retirement age.
That being said, there are good reasons for some folks to claim benefits at 62, according to finance expert Dave Ramsey.
Ramsey argues that investing early payments in high-performing mutual funds can provide a financial boon, providing extra wealth that can supplement your Social Security . Here are some pros and cons of taking Social Security at 62.
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Why Ramsey recommends this approach
Ramsey’s advice hedges largely on how you invest.
Social Security payments taken at 62 can offset the difference from waiting until your full retirement age, which varies but is 67 for all folks born after 1960.
By stuffing early Social Security payments into a high-performing mutual fund, the investment gains could surpass the benefits of waiting. Ramsey believes this strategy can help you build wealth , leading to a better financial outcome.
For example, your investing account could grow enough to compensate for the reduced monthly benefits from claiming Social Security earlier than full retirement age.
Of course, this strategy comes with significant risks, particularly if you make poor investment choices or the overall stock market underperforms for an extended period.
With that caveat in mind, here are some benefits of taking Social Security early.
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PRO: You get your money faster
Many Americans claim Social Security early simply because they need the money to cover living expenses.
During the worst of the 2008-2009 recession, around 36% of eligible men and 39% of women claimed benefits when they hit 62. Even after the recession, those percentages didn’t shift all that much.
According to the Congressional Research Service, nearly 30% of eligible workers claimed their benefits at 62 in 2021.
PRO: You can cash in if your health is poor and you don't expect to live long
It’s a grim fact, but none of us will live forever. If you don’t think you’ve got a lot of time left on the clock, so to speak, there’s no reason to delay collecting.
Even though you get a larger benefit by claiming at age 70, it will likely take until around the age of 80 to break even in total benefits compared to if you had claimed at 62.
The average life expectancy in the U.S. is around 77 as it is. People who have chronic or potentially fatal health conditions might want to claim Social Security earlier rather than later.
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PRO: You can quit your job early if you don't want to work — or can't physically do so
It’s been famously noted that we spend about one-third of our lives working. That’s something on the order of 90,000 hours. So, it’s not unreasonable to decide you have had enough and are ready to relax.
That can be especially true if you have been in a physically demanding job. A 2023 Economic Policy Institute study found that more than half of workers over the age of 50 face hazardous or physically draining conditions, making it harder to keep working.
PRO: You can use the money to get out of debt
Debt hounds many Americans. Household debt in the U.S. hit nearly $17 trillion at the end of 2022. Average debt for those between the ages of 60 and 69 was $16,661.
If you feel like you can’t wait for a larger payout and you are being smothered by bills, claiming benefits early can be the lifeline you need.
The downsides of filing early
Depending on your financial situation, it might make perfect sense to start taking benefits as soon as possible. However, there are also some drawbacks you need to be aware of.
Make Money: 8 things to do if you're barely scraping by financially CON: Your monthly benefit will be smaller forever
If you claim your benefits at 62, you are going to see a reduction in the monthly payout.
There is a reduction that is applied to each month remaining before your full retirement age.
To see how much your benefit will decrease if you start taking payments between age 62 and full retirement age, check the online charts from the Social Security Administration (SSA).
CON: Your cost-of-living adjustments will be smaller
Not only are you going to see smaller benefit paychecks, but your cost-of-living adjustments (COLAs) will not be as impactful over time if you claim Social Security early.
Each year, Social Security adjusts payments to account for increases in the cost of living. The larger your monthly payment is, the more you will get in COLA money. And this will compound, year after year.
If you claim benefits early and thus have a smaller monthly payment, you will still benefit from COLAs — but not to the same degree as you would with a larger payment.
CON: You will pay a temporary penalty if you continue to work
Being penalized for working sounds counterintuitive, but that can be the reality of the situation if you file early for Social Security, yet continue to earn income from a job.
If you file for Social Security and are under full retirement age for the whole year, the SSA will deduct $1 from your benefit payments for every $2 you earn above the annual limit. In 2024, the limit is $22,320.
Fortunately, the SSA will give you credit for these reductions once you reach full retirement age, which can help you get ahead financially .
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Taking Social Security early has advantages, such as helping you to cover immediate expenses or address costly health concerns. But there are drawbacks you need to keep in mind as you plan for retirement .
On average, Social Security only replaces about 40% of pre-retirement earnings, and filing early locks you into permanently lower monthly benefits.
As always, it’s smart to chat with a financial adviser to figure out the best option for your financial situation and long-term goals.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt. Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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