It’s best to wait until you’re 70 to start receiving Social Security retirement benefits, even if it means tapping your retirement assets deep in a bear market. Why? Because the guaranteed and risk-free increase of 8% per year in the Social Security benefit is an unbeatable deal.
And yet, in 2018 only 6% of women and 4% of men waited until they turned 70 to claim benefits. Most financial advisers and columnists point to people who take Social Security as soon as they qualify at age 62. However, about 31% of women and 27% of men turned to Social Security at that age in 2018. It’s hard to say no when someone is offering you a large amount of money right now.
There are some bad reasons to do it, like why all your friends are doing it or why you better get the benefits before Social Security runs out of money. I suspect that before that happened, Congress would raise payroll taxes for high-income people rather than cut benefits for one of the largest and most active voting blocks in the country.
But there are some decent reasons to start taking profits early, and the recession in the wake of the COVID19 pandemic has dramatically highlighted one of them: many people don’t have many options. We’ll get into that later.
One of the best reasons to take Social Security at age 62 is if you have a serious illness or chronic medical conditions. As with all retirement planning, you are acting like an amateur actuary, predicting your own life expectancy to determine how long your money will take to last.
Research shows that the more chronic conditions you have, the less likely your life will be. A 2014 study by Johns Hopkins University researchers showed that a 67-year-old person without chronic conditions will live an average of 22.6 years (almost 90) but that a person of that age with five chronic conditions will live an average of 7.7 fewer years than the healthy 67-year-old.
Those chronic conditions that the researchers analyzed included heart disease, cancer, chronic obstructive pulmonary disease, stroke, and Alzheimer’s disease. Other common chronic diseases, according to the Chronic Conditions Data Warehouse, which uses data from Medicare and Medicaid, include hypertension, arthritis, diabetes, and kidney disease. Many people who have these conditions and have been successfully treated live long, happy lives, so be sure to consult your doctor about your own situation. But if your prognosis for a long life is not good, especially if you have some chronic conditions yourself or a family history of them, Social Security should definitely be on the table early.
The coronavirus brought the other big real-world factor to the center of the stage. A 2018 survey of nearly 5,000 people by Willis Towers Watson found that 37% of employees expected to work more than 70 years, compared to 30% two years earlier. As of February 2019, more than 20% of adults over the age of 65 were working or looking for work, double the 1985 percentage, and the Bureau of Labor Statistics estimated that 13 million Americans over the age of 65 would be in the force. in 2024.
COVID-19 and government actions to prevent its spread have left some 40 million Americans without jobs, the deepest and fastest decline in history. The labor force participation rate plummeted more than seven percentage points, a surprising decline. Among them were many older workers who, three researchers concluded, have likely left the workforce forever.
“We see a huge increase in those who claim to be retired,” write Olivier Coibon of the University of Texas at Austin, Yuriy Gorodnichenko of the University of California at Berkeley and Michael Weber of the Booth School of Business at the University of Chicago. “This makes early retirement an important force in explaining the decline in labor force participation … [it] suggests that the onset of the Covid-19 crisis led to a wave of earlier-than-expected retirements. “
That led to a mini run on 401 (k) s, IRAs, and other retirement accounts. A new Bankrate survey shows that more than 27% of Americans who are still working or who are recently unemployed withdrew money from their retirement accounts. About 62% of those people cited loss of income as the main reason.
The last time we showed that it’s not a bad idea to take advantage of your retirement account to delay taking Social Security for as long as you can. But up to 45% of baby boomers have nothing saved for retirement. So if you’ve just lost your job forever and have little or no retirement savings, you have very few options: take Social Security at age 62 and get on with life.
Sometimes you just have to do what you have to do.