Welcome to Q & A Wednesday on Millionaire Habits, where I answer one of your weekly questions for everyone’s benefit. Have a question?
💡 Question: “I’m approaching retirement after a financial upset and starting over. What is your advice on taking early retirement or waiting until full retirement benefits?”
Last week, I got this question from a subscriber.
Imagine this: You’re just years away from retirement. Then, a disaster strikes that wipes much of your money out from underneath you.
Should you start taking Social Security benefits early or wait until your full benefits kick in? Damn tough question, but I have a few thoughts.
Let’s hope this doesn’t happen to you. But if it does…
Social Security: Take it now, or wait?
Here’s the deal with Social Security. You can start receiving SS benefits as early as age 62. If you start taking benefits then, you won’t receive your “full benefits.” Your monthly income gets reduced by a small percentage for each month before reaching “full retirement age.”
Your full retirement age depends on when you were born. Refer to the Social Security website for exact numbers.
Before we begin, let me say this: I’m not a financial advisor, and I don’t know the details of this situation. This is only my opinion, so take everything you are about to read with a grain of salt.
Assume you’ve lost everything. Is it prudent to take benefits now or wait?
In my humble opinion, if you need the benefits now, take them.
If taking your benefits at 62 will improve your quality of life, I see no reason to wait for the promise of a bit more later on.
There are many risks to waiting.
For instance, we never know what the future will hold – good and bad.
After a financial loss, your #1 priority is to regain your financial footing in any (legal) way possible. This extra money will help you to stay out of debt, rebuild your emergency fund, and maybe even save and invest for a richer retirement – not to mention pay your everyday living expenses.
Also – and I hate to be a downer here…if your life expectancy is shorter (or you have health concerns), taking benefits early means you might get more financial support than waiting for a larger check later and hoping nothing else goes wrong.
If it were me, I wouldn’t hesitate to begin drawing SS benefits.
Now, let’s say you didn’t lose everything. You’re approaching 62 and have a choice to make. You don’t NEED the benefits now. Should you wait?
I’m a fan of taking them now instead of waiting…but with a catch.
If you don’t need the income, take it anyway and invest 100% of every Social Security check. It’s likely that capital gains growth in the market or real estate will net you more money than if you waited for your “full retirement age” benefits.
In other words, that’s 5 years of additional investment growth. And as we know from my getting started resources, the longer you’re invested, the more money-making potential you’ll have.
So in either instance, I’m a fan of taking benefits as soon as possible.
However, there is a risk to this strategy. Investing it might be too risky if you need Social Security income to survive. In this case, I would wait as long as possible before drawing SS benefits.
I’ll stress again: Talk to a financial advisor if you’re confused or unclear about your options. A good advisor will work with you to design a plan that works for your family.
Chat next week,
– Steve
