The debate continues over whether it's better to take Social Security early or to wait until retirement age. The main argument in favor of taking the cash at age 62 is to obtain Social Security cash benefits as soon as possible, even though you then forfeit higher payouts until the age of 70.
As the data shows, every year you wait to take Social Security, you gain 8 percent annual appreciation from age 62 up to age 70—the last year you can start receiving your Social Security payouts. As an information leaflet from the U.S. Social Security Administration (SSA) explains, a recipient entitled to a benefit of $2,000 at the full retirement age (FRA) of 67 who elects to start receiving Social Security at 62 can expect to receive around $1,400 per month. However, waiting until age 70 would result in a Social Security benefit of $2,480 for that recipient.
But many recipients start taking Social Security at 62 because they need the money.
"You can take social security early if you have no other assets by which to withdraw or live on," wrote Kevin Thompson, founder and CEO at 9i Capital Group in Fort Worth, Texas, in an email to NTD. "Many people solely rely on Social Security and are forced to retire early due to some medical issue, and must live on the amount taken at the age they retire."
But what if you used the cash received at age 62 to invest in the stock market? Experts remain divided on the move, especially given the market risk involved.
"Investing Social Security proceeds at age 62 is a horrible idea because you forgo delayed credits, thus negating your ability to receive the 8 percent after FRA," Thompson wrote. "You are forgoing built-in increases for a variable rate of return, and that’s not advisable."
That’s the crux of—and the risk of—an invest-the-proceeds strategy. Social Security recipients would pass up guaranteed performance for uncertain stock market performance, as the benefits grow by approximately 8 percent per year for each year the recipient delays claiming, making for a guaranteed, inflation-adjusted return.
Alternative Approaches
However, some analysts say a more aggressive approach can be worthwhile."If you’re confident in achieving consistent returns above 8 percent after taxes and fees, and you can handle market volatility, investing early payments could be viable," wrote Mike Pruitt, a certified financial planner with MBE Wealth Management based in Madison, Wisconsin, in an email to NTD. "However, poor market performance or a crash could result in losses, leaving you with less than if you’d delayed Social Security."
Some stock market investors may be surprised to hear that the average annual stock market return was 10.2 percent from 1926 to 2019, though this is whittled down to 6.37 percent after adjusting for inflation. "You’ll be receiving 8 percent less, and it is not easy to make 8 percent on your money," wrote Aviva Pinto, managing director at Wealthspire Advisors in New York City, in an email to NTD.
"Stocks are expected to provide 6 percent and bonds about 4 percent. A balanced portfolio will only get you to 5 percent, and markets don’t go up in a straight line. So I would advise against taking it early and investing it," she wrote.
However, other market experts say investing the money at age 62 in a stable index fund can make sense.
"If you don’t need the money, take it at 62; if you need the money, wait until you are 70," wrote Paul Walker, author of the book "A Money Book Anyone Can Read," in an email to NTD. "If you don’t need the money, you can invest your Social Security check at 62, and a good index fund should earn around 12 percent over the long term."
In addition, if your spouse delays taking Social Security, the earlier benefits can offset your living expenses. "However, if Social Security makes up a sizable portion of your retirement income, then wait for as long as possible, as your benefits may increase by 20 percent or more depending on your retirement age," Walker wrote.
The views and opinions expressed are those of the interviewees. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.