How to Max your Social Security? Should You Draw it at 62?

In this photo illustration, a Social Security card sits alongside checks from the U.S. Treasury in Washington, DC on Oct. 14, 2021. (Kevin Dietsch/Getty Images)

For many Americans, the age of 62 is a noteworthy milestone.

At this age, those paying into Social Security are first eligible to draw from their benefits. Because of the crucial role that Social Security checks play in many Americans’ retirement, the age of 62 often becomes the magical age where many finally choose to retire. In fact, according to a 2021 Gallup survey, the average retirement age in America was 62. This is despite the fact that the average age that most Americans planned on retiring in 2021 was 64.

For a substantial amount of American retirees, Social Security is the most important aspect of their retirement. Pensions, a lifetime annuity typically paid out based on years of service and salary, have steadily been declining.

According to the Bureau of Labor Statistics, from 1980 to 2008 private wage and salary workers that participated in these pension plans fell from 38 percent to 20 percent. In comparison, workers participating in a defined contribution plan (a plan established and typically subsidized by employers, such as a 401(k) plan) has increased steadily. In the same 1980 to 2008 timeframe, those participating in these plans have increased from eight percent to 31 percent.

With this shift away from defined benefit plans, the importance of Social Security checks has only increased.

In 2015, the Census Bureau conducted a study to accurately measure the distribution of income for retirees 65 and older for the Current Population Survey (CPS). This survey, along with two other major surveys, found that roughly half of the aged population lived in households where Social Security counted for at least 50 percent of their total family income. Furthermore, one-quarter of the aged population lived in households where Social Security made up at least 90 percent of family income.

Social security benefits are important to everybody. (Rawpixel.com/Shutterstock)

Social Security is undeniability a major part of retirement planning, and for many retirees, it is their main source of income.

Because of its importance, a proper strategy on when to draw Social Security is essential. Should you draw Social Security at age 62, or should you wait until your full retirement age?

Benefits of Waiting to Draw

The main benefit of waiting to draw from Social Security is increasing the amount you receive per month. This amount will vary case by case, but it can be up to several hundred dollars. If you decide to wait to withdraw after hitting your full retirement age, you will receive even more money.

Delayed retirement credits are calculated starting with each month you wait beyond your full retirement age. For each month you choose to delay after your birthday month, you will receive an extra two-thirds of one percent, adding up to a total of eight percent for each full year you wait up until age 70.

Delaying this long can amount to a substantial increase in your monthly payment. If you create an account on ssa.gov, you can see the amount you will receive at age 62 and the approximate amount you will receive should you decide to wait until your full retirement age or age 70. If you can afford to wait it out and you don’t need the income immediately, then drawing at a later age is certainly a viable option.

Benefits of Drawing at Age 62

Drawing Social Security once you hit 62 has its benefits as well. If you need income, then drawing Social Security at age 62 may be a necessity.

For example, let’s say you ran numbers and determined that you will require $3,500 per month in retirement. Your full retirement age is 67, and you are deciding whether or not you should wait. If you decide to draw at age 62, your monthly amount will be $2,000, and if you wait until age 67, it will be $2,800.

A social security card with coins and cash in New York, on Feb. 14, 2021. (Chung I Ho/The Epoch Times)

If you choose to draw at age 62, to make up for the income gap needed, you will have to draw an additional $1,500 per month from your other retirement accounts, such as your 401(k). Over the course of five years, this would equate to $18,000 per year or $90,000 total taken out of that account.

However, if you decided to wait until you hit your full retirement age and did not have Social Security to supplement your income for those five years, you would have to withdraw significantly more from your other accounts. Withdrawing the entire needed amount of $3,500 per month would equate to $42,000 per year or $210,000 in total ... well over twice the amount. Unless you had a substantial dollar amount in the account at age 62 and experienced unheard-of profits during those five years, withdrawing this amount is likely not sustainable.

Of course, once you hit age 67, you would have been making $800 more than you would have if you had taken Social Security five years prior. However, is it worth draining your other retirement accounts and robbing them of the compound interest they would have made?

The Earnings Test

The earnings test is a variable for anyone intending to continue working while drawing Social Security. If you decide to do so, you can earn up to $19,560 per year before wages are withheld. For every $2 an individual earns above this amount, the Social Security Administration will withhold $1 from a worker’s benefit. This amount varies from year to year, so be mindful of the changes every year if you intend to draw from your benefits while still working. The only types of income that apply to the earnings test are working wages, so any income from retirement accounts will not be counted towards that limit.

Weigh all Options Carefully

Drawing immediately or delaying income are both solid options depending on the person; the correct decision is going to be circumstantial. Though both you and your advisor should be doing these calculations, numbers are not the only factor in play. Your health, family history, and expectation of when you think you will pass should all be considered. If everyone in your family has a tendency to pass away before age 70 and/or you are not in the greatest of health, it probably does not make much sense to defer payments.

The break-even age must be considered too. The break-even age is the age at which you would begin to make more money if you had deferred payments to your full retirement age or age 70 as opposed to if you had taken them immediately at age 62. The break-even age for most people tends to fall between 77-83. Based on this, both your life expectancy and the amount of income you think you will want and need at those ages should be considered as well.

Understand your health condition, your family members' longevities, and your financial status, you can make a good decision on when start to receive the social security benefits. (Monkey Business Images/Shutterstock)

Creating an account on ssa.gov to see your options should be the first step, regardless of when you think you will begin to withdraw. When formulating a plan of action, take your other retirement accounts, such as your 401(k) or IRA’s, into consideration. While delaying payments is undeniably a suitable option for many retirees, doing so without weighing how it will affect your other accounts can be detrimental.

The Epoch Times Copyright © 2022 The views and opinions expressed are only those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.