Podcast Summary: "Social Security at 62 vs 67 vs 70: When Should You Start Claiming Your Benefits?"

Episode Details:

• Title: Social Security at 62 vs 67 vs 70: When Should You Start Claiming Your Benefits?
• Host: James Conole, CFP®
• Release Date: May 20, 2025

James Conole delves into one of the most pivotal decisions in retirement planning: determining the optimal age to commence Social Security benefits. Through an informative and structured discussion, he explores the intricacies of claiming benefits at ages 62, 67, and 70, offering listeners a comprehensive roadmap to making an informed choice tailored to their individual circumstances.

1. Understanding Social Security Basics

Before dissecting the pros and cons of each claiming age, Conole establishes foundational knowledge about how Social Security benefits are calculated and the significance of full retirement age.

• Calculation of Benefits:

  "The Social Security Administration looks at your 35 highest years of inflation-adjusted earnings... to determine your primary insurance amount." (00:45)

• Full Retirement Age (FRA): Conole explains that the FRA varies between 66 and 67, depending on one's birth year, and distinguishes between "full benefit" and "max benefit."

• Early and Delayed Claims: Claiming benefits before FRA results in a reduction, whereas delaying claims post-FRA earns delayed retirement credits.

  "Every year that you wait beyond your full retirement age, you get what's called delayed retirement credits... an extra 8% increase in your monthly Social Security payment." (05:20)

2. Claiming Social Security at Age 62

Pros:

• Immediate Access to Funds: For those needing immediate income, claiming at 62 provides cash flow when other resources may be limited.

  "As soon as you turn age 62, you are eligible for that Social Security benefit... Immediate cash flow is obviously a benefit." (16:30)

• Reduced Pressure on Investment Portfolios: Drawing from Social Security early means relying less on investment withdrawals.

  "Every dollar that you pull on Social Security is one fewer dollar that you have to pull from your investment portfolio." (19:10)

Cons:

• Permanent Reduction in Benefits: Claiming at 62 reduces benefits by up to 30% compared to FRA.

  "If you collect at age 62, your benefit at 62 is 70% of what your primary insurance amount would have been." (10:15)

• Earnings Limit: Those who continue to work while claiming early face income restrictions, potentially reducing their benefits.

  "$23,400 is the limit... for every $2 that you earn in excess of that limit, Social Security will withhold $1 of benefits." (12:50)

• Impact on Survivor Benefits: Early claiming can lower survivor benefits for spouses.

  "If your surviving spouse is in great health... your surviving spouse [will] be living on a survivor benefit that is 100% of what your benefit was, but your benefit is as small as it could be because you collected at age 62." (14:20)

• Potential Lower Earnings Record: Stopping work at 62 might mean missing out on higher earnings years, which could have increased future benefits.

  "By 62, do you have 35 strong earnings years? And if not, every year that you would have kept working, you're actually increasing the amount that your full retirement age benefit would have been." (11:05)

3. Claiming Social Security at Age 67

Pros:

• Full Primary Insurance Amount: At FRA, beneficiaries receive 100% of their calculated benefits without reductions.

  "By the time you reach full retirement age... you are eligible for 100% of that primary insurance amount." (23:00)

• Tax Efficiency: Social Security benefits are taxed more favorably compared to traditional IRA withdrawals.

  "At a maximum, 85% of your Social Security income amount is included in your taxable income... $1 of Social Security is going to be worth more after taxes than $1 of IRA income." (24:30)

• Balanced Approach: Claiming at 67 offers a middle ground between early access and maximum benefits.

  "It's a good balanced approach that somewhat gives you the best of both worlds." (25:15)

Cons:

• Missed Opportunities for Higher Benefits: Waiting until 67 doesn't capitalize on the maximum potential benefits available by delaying until 70.

  "You're not maximizing cash flow coming in or maximizing your benefit by delaying." (26:45)

• Potential Impact for Shorter Lifespans: For individuals in poor health or with shorter life expectancies, claiming at FRA might result in lower lifetime benefits.

  "If you are someone that does not have a long life expectancy... delaying your benefit until age 67 might actually be minimizing the amount of lifetime Social Security benefits you're going to collect." (27:30)

4. Claiming Social Security at Age 70

Pros:

• Maximized Monthly Benefits: Delaying claims until 70 increases monthly benefits by up to 24% compared to FRA.

  "Your monthly benefit will be 24% higher every single month... locked in for as long as you live." (35:10)

• Enhanced Tax Strategies: Delaying benefits can facilitate strategies like Roth conversions by keeping taxable income lower in the interim.

  "Pushing Social Security out is keeping your taxable income clear... opens up some really strong potential tax strategy." (36:25)

• Reduced Severity of Financial Shortfalls: A higher guaranteed income floor from delayed benefits offers greater financial stability in case of portfolio shortfalls.

  "By maximizing your benefit, you're buying yourself more flexibility... you have this higher stable income floor that can continue meeting your needs." (38:40)

• Longevity Risk Mitigation: Ensures that benefits continue for a longer lifespan, safeguarding against the uncertainty of longevity.

  "If you live to 110 and you blow through all your assets, maximizing your Social Security benefit... it will last as long as you live." (40:15)

• Protection for Surviving Spouses: Higher benefits provide greater security for spouses in the event of the higher-earning spouse’s passing.

  "You're also protecting a surviving spouse in the instance in which maybe their benefit is not as high as yours would have been." (41:30)

Cons:

• Delayed Gratification and Portfolio Impact: Waiting until 70 postpones access to funds and may require drawing more from investment portfolios earlier.

  "By not collecting Social Security, there's a lot of delayed gratification, and you're having to spin down your portfolio assets." (43:05)

• Uncertainty of Longevity: If life expectancy is lower than anticipated, delaying benefits may result in receiving lower total benefits.

  "If you knew for certain you were not going to live past age 70, why wait until 70 to collect?" (44:20)

• Opportunity Cost: Deferring benefits means forgoing higher payments for potentially less time to enjoy them.

  "The opportunity cost of not using the money sooner." (45:50)

5. Conclusion and Final Insights

James Conole emphasizes that there is no one-size-fits-all answer when it comes to claiming Social Security benefits. The optimal age depends on various personal factors, including health status, financial needs, earnings history, and spouse considerations.

• Holistic Decision-Making: Understanding the mechanics of Social Security and evaluating the interplay between different claiming ages empowers individuals to make decisions aligned with their retirement goals.

  "None of them is a one size fits all solution... make a more informed decision for yourself." (48:10)

• Maximizing Benefits: Conole hints at further strategies for maximizing Social Security benefits, encouraging listeners to explore additional content and resources for comprehensive retirement planning.

Final Thoughts: This episode of "Ready For Retirement" serves as a valuable guide for retirees grappling with the decision of when to claim Social Security benefits. By dissecting the advantages and disadvantages of claiming at ages 62, 67, and 70, James Conole equips listeners with the knowledge needed to navigate this complex aspect of retirement planning effectively.

To explore more strategies for a secure retirement, consider subscribing to future episodes of "Ready For Retirement."