Should You Take Social Security At 62 And Invest It?
When to take Social Security is one of the biggest financial decisions retirees make. For some individuals, there is no choice – they need the income as soon as possible. For those in a financial position to wait and get income from other sources, like investments, the decision can be more complex.
If you are still working, it often makes sense to wait to take benefits because of the earnings limit, which can reduce your benefit. If you are retired, the biggest factors that come into play are usually family longevity and your personal health. Most retirees significantly underestimate their own life expectancy, which I’ve written about here. Average life expectancy is based on all human lives. It includes all deaths prior to what we would consider a “long and healthy life.” When you rule those out, you have to ask yourself what is my life expectancy today? The stats are surprising. If you are a 65-year-old female who doesn’t smoke, you have a 50% chance of living to 90! And that doesn’t assume any advances in modern medicine that could increase longevity.
When those factors are considered it often makes sense to delay taking Social Security beyond 62. However, that assumes a 0% rate of return. What if you took Social Security early and invested it instead of spending it? Would that be better than waiting until 67 or even 70? Possibly. It depends on what your expected rate of return is. Looking at the chart below from JPMorgan, you see that if you expect to live to 90, you would need to earn 8% per year on your money in order for it to make sense to take Social Security at 62 and invest it instead of waiting until age 70.
When it comes to helping clients make this decision, it depends on a few things. If all they have is investments and Social Security, I typically prefer to delay Social Security for at least a few years to lock in a guaranteed higher payment for life since the rest of their retirement income is not guaranteed. For others who have a government pension, they might be able to take the risk of taking Social Security early and investing it since they have something else to fall back on if the investment returns are below average.
Thank you for reading,
Alex
This blog post is not advice. Please read disclaimers.