Smart SpendingSmart Spending

Should you take Social Security early?

Many people decide to start collecting benefits at age 62, but that often doesn't make good money sense.

By MSN Money Partner Jun 30, 2011 10:39AM

This guest post comes from "MJP" at Go To Retirement.


The debate over when to start receiving Social Security retirement benefits rages on. My general impression is that there is a large group of folks who hit 62, are inclined to take their benefits just to have the money, then look for logic that supports their decision.

In the absence of dire necessity or life-limiting health problems, I believe this is a bad approach. Thus, I appreciated a recent article from CBS MoneyWatch that looked at the "retire early" issue from an actuarial perspective.


I can't place all of the blame on boomers for their decisions to take SS benefits at age 62. In some cases, they are encouraged by their "financial advisers" to take the benefits and invest them. These advisers, of course, are primarily salesmen. What they don't tell you is that many of their clients lack the discipline to actually invest the money when it arrives every month. They are tempted to spend it and they do. (Are you saving enough for retirement? Try MSN Money's calculator.)


But the article continues with the assumption that you will invest it. How does that work out? Here is the short answer, in the words of Steve Vernon of CBS MoneyWatch:

Does the "start early and invest" strategy result in more income than if you had simply waited until age 70 to start your Social Security benefits? The answer is yes if you don't live to at least average life expectancies, and/or if you achieve good rates of return. The answer is no if you live to average life expectancies or beyond and/or you achieve modest rates of return.

In more concrete terms, if you invest and achieve a 5% return on your investments, and further assuming 3% average cost-of-living benefit adjustments, the break-even age for taking benefits at age 62 compared with age 70 is 82. If you achieve an 8% return, the break-even age increases to 89. Post continues after video.

(The "break-even age" is the age at which total Social Security benefits received by claiming later equal and then begin to exceed total benefits received if they are claimed at age 62.)


Do you really expect to earn 8% or even 5% for the next eight years in this economic climate? I hope so, but I am not counting on it. A double-dip recession will kill that idea in a hurry.


Vernon points out that his simple actuarial analysis of taking Social Security early does not consider spousal benefits. This is a serious omission for married couples in which one spouse was the primary wage earner.


More on Go To Retirement and MSN Money:

Jun 30, 2011 11:09AM

My general impression is that a large group of folks get talked into waiting until later for benefits after hitting 62 even if they could enjoy the benefits earlier.


I'm one of the fortunate few who get a pension but even with so-called COLAs, which don't keep up with inflation, I find myself stretched enough to take SSI benefits early.  Why? Yearly increases in property taxes, double digit increases every year for health insurance, and the sure knowledge that all of us will be paying higher taxes soon because the financial institutions in this country gambled with our money.  Did I mention my own IRA took a serious hit and I no longer have what I'd conservatively planned on having?


It isn't about having more later.  It's about having enough to live on now.

Jun 30, 2011 2:35PM
A bird in hand.  Get the money as soon as you can.

I am in agreement to take ss money as soon as possible. Some of my reasoning has never been discussed, in any news article, but it is quite obvious. Right now, the US is borrowing forty cents of every dollar spent, which cannot be sustained. Either one of two things or a combination of both are going to happen. One is, the US, will be in a financial Armageddon, and our dollar will become worthless. The other which is more likely to happen, is there will have to be huge spending cuts, and social security benefits will greatly be reduced, could possibly be means tested, and ss will become a welfare program, with greatly reduced benefits.

Do not believe? Just look at the events going on in Greece, with our countries borrowing, the same eventually will happen here. Take your SS benefits as soon as possible.  

Jun 30, 2011 3:39PM
I'm one of the early takers, having signed up earlier this year at 62. If I had waited untl I was 66, I would have gotten about $500 more per month. But it would have taken me until I was 78 to break even for the money I wouldn't have collected in those four years. And who knows if the fund will be around that long. My grandparent's generation made out like bandits with Social Security having paid little into the system and drawn benefits for a number of years. My parent's generation, the Great Generation, will have done quite well, too. My generation, the Boomers, might get out of Social Security what we paid into it. But the payments will never match what we could have socked away if we had been allowed to invest the money ourselves instead of "contributing" to this government-sponsored Ponzi scheme. The generations following the Boomers will be the ones to really get screwed when they get to retirement age. By then, the government will probably have done a Mother Hubbard on them.
Jun 30, 2011 4:12PM

There's a interesting article at AARP about the Social Security System.  According to them it's in really good shape.  It will need some minor repair in the future, but no major overhaul.  I tend to trust them more than the rest of the media hype and their scare tactics.


If Americans would get out of the "Spend, SPEND, SPEND" habit and quit blaming their overindulgence on everyone else, they wouldn't have to worry so much about retirement. Save some money for once, instead of spending it as soon as it hits your hand! Quit buying every new gadget that comes out. Like an old saying goes "Keeping up with the Jones' will break you."


I don't care I'm getting out at 62, I've socked away a pretty good chunk of money.  And I'm sick and tired of the "Great American Work Force." A bunch of lazy, irresponsible, over grown kids. It's not much wonder we have so many Mexicans here doing our jobs for us.  Americans have deemed themselves too important to do any actual work!

Jul 1, 2011 8:35AM
I'm not eligible for SS benefits, but my wife is and began taking benefits at 62 - 2 years ago.  We are very disciplined, and have invested each check in a pre-decided investment strategy, including stocks (only that pay dividends), etf's, bond funds, and reits.  We discussed at length before signing up.  I was somewhat in favor or waiting, but she was not, and it's her benefit.  Her fear is that benefits will be reduced in the future for all, or will be means tested and only those with no other income will get the "full benefit."  We do not regret the decision, as we plan to continue investing the monthly check indefinitely for future use when we get "really" old.
Jul 1, 2011 11:39AM

If you live to your actuarial age of death, you'll have received the same dollar amount of Social Security regardless of whether you began your payouts at 62, at 70, or anywhere iin between.


Investment of any of the payouts carries no weight in the preceding statement. Investing could cause losses or gains that render the begin-collecting timing a moot point.


It's simply a matter of fact that those not living to their actuarial age of death lose total SS payout money by not collecting as soon as possible (62); those living to their actuarial age of death neither gain nor lose total SS payout money; and those souls living beyond their actuarial age of death gain total SS payout money by collecting as late as possible (70) and living till hell freezes over, the system goes broke, or the good Lord calls them home at some advanced date.

Jul 1, 2011 9:45AM
The article had some good points. I personally think it depends on exactly where you're at 62. If you have multiple retirements, or a big chunk of money in the bank, you have choices to make. Then again, if you make between 20 and $30,000, and don't have that big hunk of money in the bank, you're playing a new game.
The sad truth is, that living on just Social Security with high debt and no job, is impossible. I know a lot of people plan to work till they keel over. In this economy older people are being forced out all the time. Older people should be glad that younger people don't want to do some dreaded jobs.
Without some quick money in the bank, or a way to pay down some of the heavier credit card and installment bills, you will hit the brick wall. For these people who I'm talking to, and you know who you are! I suggest that you take your Social Security at 62 put 40 to 50% in your 401(k), and build up a nest egg. You will live the same way that you did at 61. The 40 or 50% you put into your 401(k) will add up at between $800-$1200 a month. All rules apply. The money can only be took out once a year. All you contribute to your 401(k) and take out once a year, does not make a penalty on your early Social Security check. At the end of four years you can at least pay down your bills, or start a small business.
Jun 30, 2011 7:15PM
I agree with the article. I downloaded the Soc. Sec. Benefit Calculator from the SS website, entered all the data from the mailing they send out with every year's info, and looked at what would I'd get if I began at 62, 62.5, 63, 63.5, 64, etc.  I then looked at if I began collecting at 62, saved all the money, then used the savings to match to supplement my SS checks to match what I'd have gotten at 62.5, 63, 64, etc.  I'd have to get 7.4% interest for the savings to last to age 80.

So, since non-smoking men in my family typically live to their late 80's, I figure I'm better off waiting.

BUT!!!!  There's another consideration!  If my income, at 62 or 66 is more than I need in either case, am I better of taking it at 62 so I can do more traveling and other things I won't be able to do in my 80's?

I'm already retired and 60, so I delaying wouldn't increase my working income.  I'll probably begin collecting around 64 which is when I expect I won't want to drain my nest egg any lower but will still want to travel, etc.

Jun 30, 2011 7:16PM
Take it NOW!!!  You can always pay it back in full at full retirement age, and your benefits will be adjusted to the full retirement rate!  In the meantime, you have had the use of "YOUR" money!
Jul 3, 2011 2:05PM

Everyone needs to take a step back and get realistic.


First if you are really worried about this issue, it's a sign that you probably have not gotten serious enough about having a nest egg, or perhaps have gotten serious at too late a date.  Young people take note.  Put off some big ticket items or learn to live without them.  I have a friend from India who has always said that everyone makes enough money.  It's their spending that needs to be adjusted.  Sound familar at political levels?  While this is a bit harsh, there is wisdom behind this that needs to be applied way more than it is.  And for those that would be tempted to think that you can't take what a person from India says, let me point out that these are the people we are competing with.


Next on the get real list is that you need to remember that life is not a test run and if you get it wrong, we can go back for a do-over.  We are all mortal and our lives will end at some unknoiwn date, statistics about average life spans be damned.  More compelling is that you may have health issues as you age.  Pay attention earlier in life and do not be left with impossible decisions.  Have a Plan A and a Plan B or more.

Jun 30, 2011 9:49PM

I agree with Coastrunner121...take it now. You can pay it back and reset your montly draw amount, at a higher rate and use the money in the mean time...although this might change.

In order to help fix the SS issue, I don't think people should be allowed to work full time AND draw full social security at full retirement age...the double dipping senario. I think they should get docked a percentage of their SS check, after they earn a certain amount, just like those that start pulling at 62. This would help free up jobs for people that actually need them and reduce the amount pulled from the SS budget.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.