Why Taking Social Security Early Can Be a Huge Mistake

As a Financial Advisor, I am often amazed when meeting prospective clients for the first time and I hear that they have already decided to take Social Security as soon as they turn 62.  When I ask how they came to that decision, I get some interesting answers.  The usual ones are that they don’t know when they will die and want make sure they get to take advantage while they are still living or they are not sure how long Social Security will be around.  Another answer I get often and find most amusing is that their friends all took it early and so they will too.

Worrying that you may die young or Social Security won’t last are valid concerns.  There really is no perfect answer as to when you should take Social Security.  If you can tell me exactly when you will die, I will tell you exactly when to take it.  There are however, better decisions than others based on the information available.

When you take Social Security early, you permanently reduce your benefit.  You can only change your mind in the first 12 months and would have to pay back the benefits already taken. The difference in benefits between age 62, full retirement age (FRA), and age 70 can be substantial. Your benefit grows by 8% per year until age 70 if you delay taking it.  If your FRA benefit is $3000 a month, taking it at 62 will reduce your benefit to $2100 month while waiting to age 70 your benefit would be $3779 in today’s dollars.  By waiting, that typically means you are spending down savings at a higher rate early but slowing down withdrawals later.  You are essentially trading current dollars for a larger more guaranteed benefit later.

One thing to consider is Social Security also adjusts your benefit each year for inflation.  If you start with a small benefit, your inflation adjustment will also be small.  Last year, the inflation adjustment was 2.5%.  If your monthly benefit was $2,100, then your inflation adjustment for 2025 was $52.50 a month.  If your monthly benefit was $3,779 then your adjustment was $94.48 per month.  These adjustments compound yearly and can make a significant difference later in life.  For simplicity’s sake, let’s use a 2.5% rate of inflation each year and calculate what this person’s benefit looks like at age 80 if they took the benefit at age 62 vs age 70. The benefit for taking Social Security at age 62 would grow with inflation adjustments to $3,275 per month or $39,300 per year.  Taking the benefit at age 70, their benefit grows, with inflation adjustments, to $5,894 per month or $70,728 per year at age 80. That is a difference of $31,428 per year! Pretty significant.

Source & Disclosure: Breakeven analysis assumes a Full Retirement Age (FRA) monthly benefit of $3,000 at age 67. Claiming at 62 reduces benefits to ~$2,100/month, while delaying to age 70 increases benefits to ~$3,779/month, based on Social Security Administration (SSA) rules for early filing reductions and delayed retirement credits (+8% per year). A 2.5% annual cost-of-living adjustment (COLA) is applied. Under these assumptions, the breakeven age between claiming at 62 vs. 67 is just under 79 years, and between claiming at 67 vs. 70 is about 80 years. Actual breakeven points will vary depending on individual earnings history, longevity, and future SSA-determined COLAs. Data source: Social Security Administration

Of course, if you wait and die young, then you didn’t get all you could have from Social Security. The breakeven point between taking Social Security at age 62 and 67 is just under 79 years old. Between age 67 and age 70, the breakeven is age 80 and a few months according to AARP.  Live a long life and you could do much better by waiting.

Another consideration for married people is what happens when one qualifying spouse predeceases the other.  The surviving spouse will receive the greater of their benefit or their spouse. In other words, the smaller benefit is lost.  Most people think that’s OK because the surviving spouse’s cost of living is much less than both spouses together.  That’s not necessarily true.  Suppose the surviving spouse wishes to live in the same home.  Those costs don’t go down very much if at all.  Also, the surviving spouse will also begin filing taxes as a single file under much more compressed tax brackets so their taxes should increase significantly. These factors negate much of the cost savings of supporting one person vs two.  I will often recommend that the spouse with the higher benefit wait to take Social Security to ensure that they leave the survivor with a decent benefit.

There are a lot of factors to consider when deciding to take Social Security.  There is no single general answer that applies to everyone.  Everything from a past divorce, if you have a pension, are widowed, still have dependents, and how much you have saved all affect this decision. Getting this decision wrong can means tens or even hundreds of thousands of dollars lost over the course of a retirement.  Getting the advice of an experienced advisor can save you from a terrible irreversible mistake.

Advisors Capital Management, LLC is an investment advisor registered with the United States Securities and Exchange Commission. Registration does not imply any degree of skill or training. All investing carries risk, including the potential for the loss of principal and past performance is no guarantee of future results. This content is for informational purposes only, can change at any time without notice, and is not investment advice or a recommendation to trade any security. Indices are not available for direct investment. We only provide services in jurisdictions where we are registered. Our disclosure brochure (ADV Part 2A) and customer relationship summary (ADV Part 3) are available at https://adviserinfo.sec.gov and upon request.