Does Taking Social Security Early Reduce Your Retirement Income?

What’s the best age to start taking Social Security? That is a frequently asked question for financial advisors. It’s also, as any financial advisor will admit, completely unanswerable without significantly more information. Social Security is too inherently complex for one-size-fits-most recommendations.

A lack of context, however, does not stop commenters on online financial forums. I peeked in on one where a member asked whether he should take Social Security at 62 or wait until 70. The question was simple, and unfortunately so were many of the over 1400 responses. He largely got answers when the response his question needed was more questions.

Most of the comments completely avoided the financial aspect of retiring at 62, as if the money were a non-issue. The main sentiment of those on this forum appeared to be getting out of their jobs and into retirement as soon as possible without regard to the financial sacrifice.

Others took the opinion that that leaving money on the table by waiting until after 62 was ridiculous. A few representative comments were:

  • “Tomorrow isn’t promised to us.”
  • “A reason to collect earlier is that no one knows how many years they have left.”
  • “Life is literally a crap shoot [sic]. You gotta count your money & you gotta make a decision re: how long you think you will live!”

Others focused more specifically on the “breakeven point,” the age at which you will have received the same total amount whether you take benefits at 62 or wait till 70. The actual breakeven ages vary depending on when you start your benefits. Generally speaking, the breakeven age for starting at 62 is around 78 and for starting at 67 or 70 is around 82.

Clearly, most of those posting had great skepticism they would make it to their breakeven age. Based on many conversations I’ve had with clients over the years, this belief seems to be common. Yet, unless you have a current terminal diagnosis, using a rule of thumb that you will die before your breakeven age has a high probability of being wrong.

Certainly, there is some truth in thinking that if you die before the breakeven age, you are better off financially having taken Social Security early. The decision to take Social Security at age 62 becomes very simple if you know that you are going to die at age 73. For most of us, figuring out how long we will live is not that easy.

While some people take Social Security early out of financial necessity, it appears that many people who start benefits at age 62 are betting they won’t make it to age 78. Most of them will lose that bet, because the average 62-year-old will live to 85. A 62-year-old only has a 43% of dying before the breakeven age of 78. Life expectancy is even higher for those who reach 67 and 70, topping out at 88.

Social Security Administration figures from 2021 show that 90% of retirees file for benefits before age 70, with nearly 30% filing at age 62 and 60% filing between 62 and 70. Only 10%  wait until age 70.

By now, you may be feeling overwhelmed by statistics, which shows exactly why deciding when to file for Social Security is so complicated. However, unless you have a terminal diagnosis or a significant underlying health concern, taking benefits at age 62 means there is a good chance you will leave retirement income on the table. This is exactly what you don’t want to do at a time in your life when you will likely need it the most.

Related: Fee-Offset: When Commission-Based Advice Benefits You