Here’s why you ought to seriously consider taking Social Security at 62. Even if the 'basic' math suggests otherwise

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If you’ve spent any time planning for retirement, you probably know the basics of Social Security. Most people can start claiming benefits at age 62, reaching full retirement age (FRA) between 66 and 67 depending on their birth year, and can delay benefits until 70 (1).

The longer you wait, the larger your monthly payment — delaying past your FRA can increase your benefit by up to 8% per year, according to the Social Security Administration (SSA) (2).

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That sounds like a great deal on paper. But in practice, the decision is more complex and, for some retirees, delaying could end up costing money.

Here’s why the simple math behind delaying benefits doesn’t always add up.

The basic math falls short

The problem with the “basic math” behind delaying Social Security is that it often overlooks longevity risk. While it’s true that waiting longer increases your benefit, your total lifetime payout could be lower if you don’t live as long as expected.

For example, if you wait until age 70 to start collecting benefits but pass away at 72, you’ve only received two years of payments. Claiming earlier — even at a reduced rate — could have resulted in a larger total payout over your lifetime.

If you pass away before 70, you effectively receive nothing from a system you’ve spent decades paying into.

To be fair, estimating longevity is inherently uncertain. According to the Peterson-KFF Health System Tracker, average life expectancy in the U.S. is approximately 78.4 years — but individual outcomes vary widely (3). Many people live into their 80s and 90s, while others don’t reach average life expectancy.

To help navigate this uncertainty, many financial advisors use a “breakeven age” analysis. This calculation estimates the age at which the cumulative benefits from delaying Social Security surpass those of claiming earlier.

For example, someone entitled to $2,000 a month at their full retirement age of 67 would need to live longer than 78 years and eight months to come out ahead compared to claiming at 62. If they wait until age 70, the breakeven age rises to about 80 years and five months (4).

However, even this analysis has limitations. It typically doesn’t account for the time value of money, or the opportunity cost of accessing and investing earlier benefits.

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Beware the opportunity cost

If you retire at 62 but delay claiming Social Security until 67, you may have to rely on withdrawals from your savings or tax-advantaged accounts like your 401(k) to cover living expenses. By doing so, you’re forgoing the potential investment returns those funds could have earned if left untouched.

This trade-off is known as opportunity cost, and it’s an important factor to consider in retirement planning.

When you factor opportunity cost into your breakeven analysis, the age at which delaying benefits becomes advantageous can be pushed significantly further out.

For example, someone eligible for $2,000 per month at their full retirement age of 67, assuming a 5% annual return on their investments, would need to live approximately 88 years and eight months to reach the breakeven age.

If the expected return is 8% annually, the breakeven point may not be reached within a typical lifespan. In other words, claiming benefits earlier while keeping retirement savings invested could yield a better financial outcome in this scenario.

But there are ways to decrease the opportunity cost once you’re aware of your breakeven point.

Use your emergency fund to bridge the gap

If you prefer to delay Social Security, you’ll need a significant emergency fund saved up to avoid taking money out of your investments for as long as possible. Of course, with that much money stored away, you’ll want to ensure it’s keeping up with inflation.

A high-yield account like the Wealthfront Cash Account can be a great place to grow your emergency fund, since it offers competitive interest rates and easy access to your cash when you need it.

A Wealthfront Cash Account can provide a base variable APY of 3.50%, but Moneywise readers can receive a 0.65% boost over their first three months for a total APY of 4.15%. That’s over ten times the national deposit savings rate, according to the FDIC’s October report.

With no minimum balances or account fees, 24/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Plus, Wealthfront Cash Account balances of up to $8 million are insured by the FDIC through program banks.

Consider a HELOC if the math makes sense

For homeowners, another way to avoid the opportunity cost that comes from using your tax-sheltered investment funds early is a home equity line of credit (HELOC).

You’ll want to run the numbers with a financial advisor first to make sure you come out ahead, but if the math works, a HELOC could provide an alternative that allows you to keep your 401(k) and IRA invested longer while still retiring early.

HELOCs can give you extra financial flexibility by using your home's equity as collateral. With this in mind, it’s important to have a clear repayment strategy that you can commit to. Typically, your home will also need significant equity to make the flexibility from a HELOC worthwhile.

What else can retirees do?

Because the basic math behind Social Security decisions often overlooks key variables — and estimating factors like investment returns and longevity is inherently uncertain — working with a qualified financial advisor can be a smart move.

A professional planner can help you account for additional considerations such as inflation, estate planning, health care costs and annual spending needs.

With Vanguard, you can connect with a personal advisor who can help assess how you’re doing so far and make sure you've got the right portfolio to meet your goals on time.

Vanguard’s hybrid advisory system combines advice from professional advisers and automated portfolio management to make sure your investments are working to achieve your financial goals.

All you have to do is fill out a brief questionnaire about your financial goals, and Vanguard’s advisors will help you set a tailored plan, and stick to it.

The bottom line? Oversimplifying your retirement strategy could be costly. A more comprehensive, personalized approach can help you make better-informed decisions and improve your long-term financial outcome.

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Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Social Security Administration (1); (2); Peterson-KFF (3); Approach Financial (4)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.