Is Claiming Social Security Early at 62 Actually the Right Move?

A major retirement decision is when to start claiming Social Security benefits. There are many ways to visualize the decision process, and here is another interesting one based on taking the “Net Present Value”. Essentially, you are taking into account the time value of money to aide your comparison, here assuming a 4% real return (which is both rather optimistic and yet somehow less than what people have received over the last ~10 years).

Source: Ways to Wealth via Early Retirement forum.

If you just go off this chart, you might get a different takeaway than if you used the default answer on free sites like Social Security Optimizer by T. Rowe Price or Open Social Security. Note that the default discount rate for real return is currently 2.7% for Open Social Security; changing this number may alter your results.

People are usually quite willing to accept a discount if they get the money now, and in this case the discount doesn’t even seem that high at less than 10% (again, using the assumptions provided). If you don’t live to 85, claiming at 62 actually puts you ahead.

There are many other factors to consider, like your other income which can increase the tax rates on Social Security income, Roth conversion concerns, spousal situation, health status, and so on. Social Security is still the only way to “purchase” (by waiting to claim) additional income that is both guaranteed to increase with inflation and last for the rest of your lifetime. But if you are retired and in a cashflow crunch, waiting another 5+ years to claim may not be worth the theoretical possible extra money you might get if you live past age 80-85.