To Claim or Not To Claim. That Is the Question

I saw a lot of coverage last week about people taking their Social Security benefits as soon as they become eligible at age 62. This is a typical headline.

The thinking is that the much larger than expected number of people filing for their Social Security benefits at the earliest age is due to concerns that program benefits will be cut in the future as a result of DOGE and President Trump’s lack of regard for legacy institutions. With that being said Trump has expressly stated that Social Security is not targeted for cuts and politicians know that advocating for cutting benefits to a demographic that votes in large percentages and is growing rapidly is not a wise move politically.

The common wisdom is that if you don’t need your benefits at 62 and you can wait until 67, or even 70, then it makes much greater financial sense to do so. That is because the rate of return for waiting is considered attractive. Here is an excerpt from the article linked above discussing this thinking.

But there’s a major cost to claiming at 62. While it might seem prudent to claim early if you’re worried Social Security won’t be around in a few years — something that experts say is extremely unlikely — the tradeoff is a permanently lower monthly benefit. 

People who claim Social Security benefits at 62 receive about 30% less in their monthly checks than if they wait until they turn 67, which is currently the program’s full retirement age. Older Americans can collect even greater benefits if they delay filing past their full retirement age, getting an extra 24% boost to their monthly check if they wait until they turn 70. 

Because of that math, Richtman said his group recommends holding off on claiming, even though people might be fearful about the program’s health. 

I will admit that I have been in this camp as the deferred gratification results in tax-deferred compounding of my future benefits. I have tried to save, invest, and spend in a way that Social Security benefits will be additive to my financial well being and not a necessary component of it. Given this, the idea of waiting until I’m 70 is very appealing. Or, at least it had been, until I had a brief conversation with someone in the middle of a tennis match.

My opponent was someone who worked in the legal profession and had recently retired or was close to doing so as I recall. That detail isn’t as important as what he said to me when I asked him if he was going to wait to claim his Social Security benefits until later so he could receive more money down the road. He told me, no,  he was going to take the money now because, even though he was healthy, he didn’t know how long he would live so he might as well take the benefit now.

I must confess I never took into consideration my early demise when thinking about what I would do when I reach 62. I will be 60 at the end of this month, so this decision point is around the corner. Countering the mortality issue is my strong psychological aversion to claiming my benefits when I reach 62 because I get great satisfaction out of tax-deferred compounding at compelling rates.

When wrestling with a financial decision I tend to activate the left side of my brain and go into number crunching mode. I logged into my Social Security account to find out what my projected benefits would be when I’m 62, 67, and 70. I assumed that benefits would go up at an annual rate of 2.50%. I then created three scenarios in order to see what the break even age I needed to live beyond in order to get more total dollars from waiting versus taking my benefits at 62 or 67. This analysis does not factor in either reinvesting the dollars I receive or using them to pay down debt. I didn’t want to make it more complicated as this is my first approach to analyzing my situation.

It turns out that I need to live to 81 and 8 months in order for claiming my benefit starting at age 67 to equal taking my benefit at 62. And if I wait until age 70 then I need to live until 83 and 4 months for it to exceed claiming my benefits at age 62. And when comparing taking my benefits at 70 versus 67 then I need to live until 85 and 5 months.

Now the question is what is my life expectancy?

The off the cuff approach to answering this question is to find life expectancy tables and see what the average life expectancy is for a U.S. male. This happens to be 74.8 according to the CDC. The good news is that I now know what I should do in terms of when to claim my benefits (age 62) and the bad news is that I have far fewer years ahead of me than behind.

But wait a minute, not so fast. Let’s not forget that 74.8 is the average, which obviously includes people that have not made it to 74.8 and those who have exceeded it. What about for someone like me who has already made it to 60? What is my life expectancy? A U.S. male who is 60 is projected to live until 83, which now makes the Social Security issue a more difficult decision but is nice for me as  I statistically still have a good number of years ahead of me.

Let’s put on my rose colored glasses and assume that I continue to invest in my Blue Zone type of life focusing on productive work, tennis, socialization, giving back, healthy eating, remaining curious, and having deep relationships such that I’m quite confident I will make it to 70. So now the question is what is the life expectancy of a U.S. male at age 70? The answer is 84.4. This shows how challenging it is to add to one’s life expectancy as we get older as living 10 more years only adds 1.4 years of life expectancy.

It seems to me that if I were to start taking my benefits at 67 this would be a win-win for me. I’m betting on myself that I will live beyond 81 and 8 months which exceeds the cumulative benefits from claiming them at 62. And if I live past 85 and 5 months then good for me as I lived longer than expected and the dollar differential, before factoring in the benefits of receiving money early and taxes, are only 4.5% less by having taken my benefits at 67 versus 70 if I live to 90. And once again, my analysis doesn’t even factor in what I can do with the money that I collected earlier.

And while it’s possible my analysis may be missing some important considerations, after taking this first cut at it I feel like 67 could be the magic age to balance my angst of taking money early that I hopefully don’t need while also recognizing that waiting too long could result in me receiving very little benefit, which would be annoying as well given how much I have paid into the system.