Should you tap your Social Security benefits early?

The retirement checklist
The retirement checklist

Most people say you should delay taking Social Security to get a bigger benefit. But rather than waiting for a larger monthly check in the future, I think I'd be much better off collecting Social Security as soon as I can and investing the payments. Do you agree? -- Michael P., Chicago

In a word, no.

I understand the appeal of what you propose. Many people want to get their hands on their benefits as soon as possible, fearing (incorrectly) that Social Security will go broke. Others enjoy the sense of control they get from investing those funds instead of passively waiting for a higher payment down the road.

Still, I think coming out ahead with the strategy you're contemplating will be a lot harder, and riskier, than you think. And there are some downsides that may disadvantage you in ways you haven't considered.

Here's an example.

Let's assume you're 62, the earliest age at which you can claim your worker's benefit, and you have the choice of taking $9,000 a year now or $12,000 a year if you wait until age 66, the age at which you will qualify for a full Social Security benefit.

Related: Your 3 biggest Social Security questions answered

In short, you'll take the standard 25% haircut for claiming your benefit at 62 versus your full retirement age of 66. Social Security will increase those benefits for inflation. So, if inflation runs at, say, 2% a year, the $9,000 payment you started receiving at age 62 will have grown to $9,742 by age 66. Had you waited until age 66 to claim benefits, however, you would start with a benefit of $12,989, or $12,000 plus four years of inflation increases.

If you go ahead with your plan to take benefits early, your Social Security payment would be $9,742 at age 66. That's $3,247 less than the $12,989 you would be entitled to had you waited until age 66 to collect. But you'll also have those four years' worth of Social Security payments you invested. Assuming you invested all of those benefits in a broadly diversified 50% stocks-50% bonds portfolio that returned 5% a year, those early payments would be worth $41,918.

So the question is: Are you better off with the lower Social Security payment plus the $41,918, or waiting for the higher payment for life?

One way to answer that question is to see how long that $41,918, plus future investment earnings on it, would last if you withdrew just enough each year so that the withdrawal plus your lower Social Security payment would match the higher full-age benefit.

Ultimate Retirement Guide: Social Security

And if you go through that process -- withdrawing $3,247 the first year at age 66, $3,312 the second, $3,378 the third, etc. -- you would find that your stash of invested early Social Security payments would run out at age 81. You can think of that as the "break-even" age for your strategy.

At that point, you would have nothing left of the payments you invested, and your Social Security payment at 81, $13,111 ($9,000 plus inflation adjustments), would be $4,371 lower than the $17,482 payment ($12,000, plus inflation) you would be getting had you waited until age 66 to collect. And each year, that dollar gap would widen since your inflation increases are applied to a smaller payment.

You can come up with different break-even ages based on different inflation rates and investment returns. The lower inflation is and the higher your investment return, the longer it would take for your invested Social Security payments to run out. If you figure you'll earn a higher return by investing more aggressively, your scheme looks much better.

Problem is, the more investing risk you take, the greater the chance that your Social Security fund may suffer a big setback. And the combination of an investment loss plus the withdrawals from the fund could potentially deplete your Social Security stash faster than a more conservatively invested portfolio.

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Suffice it to say that unless you're willing to roll the dice, you're probably looking at a break-even age in the early to mid-80s. And even that's not certain. It's possible that even without a market setback, a conservatively invested portfolio might return less than 5% a year.

Of course, if you die before you reach your early- to mid-80s, you could end up collecting more with your strategy than by waiting for the higher full-age benefit. But how likely is that?

Life expectancy for a 65-year-old man is approximately 86 or 87 and a woman is 88 or 89. And roughly half of people live beyond those estimates, many well beyond. Besides, if you're married and you're the higher wage earner, your spouse may be stuck with that lower benefit if she (or he) outlives you. That's another reason many people hold off for a higher benefit.

There are plenty of other ways to crunch these numbers and many other factors you can take into account, such as taxes, which I've left out to simplify things. (I should also note that there's an "escape clause." If you decide to change your mind within 12 months, you can repay benefits and reapply for higher payments later.) But unless you're an incredibly talented or lucky investor or you expect to die early (and your spouse's benefit isn't an issue), you're probably better off just waiting until full-retirement age to collect.

Related: When can I start getting Social Security payouts?

Indeed, you may be able to collect even more over your lifetime by postponing payments to as late as age 70. And if you're married, you may be able to maximize the amount you and your spouse receive by coordinating when you claim benefits.

Given the amount of money involved, I think almost everyone should consult a Social Security calculator before filing for benefits or, if you're not comfortable doing the analysis on your own, consult a service, such as Maximize My Social Security or Social Security Solutions that will lay out your options for a fee.

I'm all for astute investing in retirement, including reasonable ways to take Social Security into account when building a portfolio. But the strategy you're proposing combines little upside potential with lots of downside risk. That's a lousy combo. So I recommend you abandon it.

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Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at