Personal Finance

3 times you should claim Social Security early

Key Points
  • Frightening headlines aren’t helpful when you’re trying to make a decision about claiming Social Security.
  • Despite the conventional wisdom about waiting till full retirement age, some people might actually benefit from claiming earlier.
Tara Moore | Getty Images

Scared about Social Security? Don't be.

Terrifying headlines about Social Security running out of money abound, but don't rush to believe all the negative hype.

And certainly do not act on it. Treat it like any investing decision. In other words, don't let your emotions get the better of you, especially when they dictate financial decisions, says Andrew Crowell, vice chairman of D.A. Davidson & Co. Wealth Management.

We've all heard of people who sold too early, or sold too low. And they generally did it because they were reacting to bad or good news about the stock market.

Just as they do with investing, people get sidelined by emotions when making decisions around Social Security, Crowell says.

It's easy to over-focus on the Social Security question. But Crowell reminds people to scout other retirement benefits. If you worked in the armed forces, you may qualify for veteran benefits. If you are a teacher, there might still be a pension program you qualify to receive.

Trustees say Social Security will be insolvent in 2034

"The latest study on Social Security confirms 2034 as the date the trust runs out," Crowell said. "It really inflamed a lot of people's worries."

The common thought process is, "Maybe I should take all I can get, before it runs out, and claim early."

"But most people don't fully understand the results of the Social Security study," Crowell said. And many wonder if the U.S. government will actually slash existing benefit checks.

Most people don’t fully understand the results of the Social Security study. And many are wondering if the U.S. government will actually slash existing benefit checks.
Andrew Crowell
D.A. Davidson Wealth Management

Cutting Social Security would set off a hand grenade, politically.

"We could see a new rule for people entering the workforce in five to 10 years, where the definition of full retirement age changes, or the metric of calculating the benefit changes," Crowell said.

He said he sees no evidence of cutting benefits, and it's never been done previously.

The current situation may unfold in way similar to the late '70s, says Jim Blankenship, a certified financial planner at Blankenship Financial Planning in New Berlin, Illinois, when the Social Security system was beginning to show signs of faltering.

The government waited till 1982 to raise the full retirement age and increase taxation, "the year it was projected we'd have to start cutting benefits," Blankenship said.

Another example, according to Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget, was delaying the cost-of-living adjustment in 1983. "It meant benefits didn't fully grow with inflation," Goldwein said.

Means testing and additional taxation are two methods that could be used to strengthen the system. "But a systematic, across-the-board reduction?" Blankenship said. "I don't think so."

The total benefit

One fear is that you'll give up a bigger paycheck.

It can be confusing, but your total benefit is calculated to be the same no matter when you start claiming, according to Crowell. "If you start earlier, you're going to get the payout for a longer period," he said. A Social Security table spells out how your benefit changes depending on when you claim.

Be aware there is a crossover point when waiting for the higher amount, combined with more years spent in retirement, would result in a greater benefit. Try this calculator for different scenarios.

It's not always optimal, but there are some situations in which taking retirement benefits earlier is a good decision.

If you recognize yourself in one of the following scenarios, claiming early might be an appropriate strategy for you. As with any financial decision, let facts, not emotions, guide you.

1. Sleepless nights

Ask yourself if you're losing sleep at night. "It's a hollow victory if you want the maximum benefit, but every day you fret over it and it gives you ulcers," Crowell said.

Retirement is supposed to be a time of peace, not frantic worry. If the anxiety over losing your benefit because of a future reduction is wrecking your peace of mind, it may be worth it to claim early.

2. Health factors

If you think your life expectancy has changed — perhaps you once thought you'd live into your 90s, but now believe that is less likely – that could be a good reason to claim early.

You would be giving up the larger benefit, but if you may not be around to claim it, then it is definitely worth starting sooner than later. Why wait to collect what is rightfully yours if you may not be around as long as you had planned?

Cash flow needs or health concerns are critical parts of making this decision. "Life happens," Crowell said.

3. If you're a married woman

You can make a logical case for married women to start taking benefits at the earliest possible time. "It's probable, according to statistics, that she will outlive her husband," Crowell said.

A married woman can start taking her benefit early and treat it as a new income source. When he passes away, "she gets a step-up to whatever his benefit was," Crowell said. That's assuming his income was the higher of the two.

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