Should You Elect Early Social Security Benefits?

One of the most critical decisions regarding Social Security benefits is deciding when to start those benefits. The age for full Social Security benefits is increasing from 65 to 67 for individuals born after 1937. You can still elect benefits at age 62, but the permanent reduction in benefits is higher.

For someone who dies at their normal life expectancy, these reductions would result in the same dollar amount of benefits as someone who starts benefits at full retirement age. However, if you live beyond your normal life expectancy, you will receive less in total benefits by retiring at age 62. Also, since your later earning years are typically higher than your earlier earning years, working those extra three to five years will likely increase the amount of your Social Security benefits.

Carefully consider the advantages and disadvantages before electing benefits at age 62. While it may seem attractive to start retirement at age 62, you are taking a substantial, permanent reduction in your Social Security benefits to do so. And since Social Security benefits probably won't be sufficient to maintain your current standard of living, you should first decide whether you have sufficient retirement resources to even consider retiring at age 62. If you will need to continue working, keep in mind that between the ages of 62 and full retirement age, you lose $1 in benefits for every $2 earned over $12,480 in 2006. Thus, if you expect to earn wages substantially over this limit, you may want to delay your Social Security benefits.

Another consideration is whether your spouse's Social Security benefits will be based on your benefits, especially if your spouse is much younger. While you are alive, your spouse is entitled to the larger of 100% of his/her benefit based on his/her earnings or 50% of your benefit at full retirement age. However, if you elect benefits before full retirement age, your spouse's benefit will be reduced by a higher percentage than your benefits were reduced. After your death, your spouse receives 100% of your benefit providing he/she is over the full retirement age. If not, your spouse receives between 71.5% and 100% of your benefits. Thus, the larger your benefit is, the larger your spouse's benefit will be after your death.