3 Reasons I'll Be Taking Social Security Long Before Age 70

For most investors, the idea of trading time for more money is a familiar one. The more patient you are able to be with your investments, the more aggressive your stock-picking can be because you can ride out periods of temporary volatility. And, more time in the market means more opportunity for your investments to deliver the exponential benefits of compound growth.

Patience can work in your favor when it comes to the size of your Social Security benefits as well -- the longer you wait to claim them, the bigger your monthly payments will eventually be.

That said, just because a decision can result in a larger nest egg or a bigger monthly retirement benefit, that doesn't inherently make it the best choice for you. For instance, after some serious thought and a bit of number-crunching, I've decided I'm going to claim my Social Security benefits well before I turn 70, even though doing so will permanently reduce the size of my monthly payments. Here are the top three reasons why I'm willing to do this, and why you might want to consider doing the same.

1. I'm worried about reduced payments

The cost of the decision isn't insignificant. If I wait until I turn 70 to file, I'll collect about 24% more than I'll be eligible to receive every month if I claim at what the program defines as my "full retirement age" (or FRA) of 67. Conversely, if I claim earlier than 67, the program will reduce my monthly payments by as much as 30% compared to what I would be eligible to receive by waiting until reaching my FRA to file.

That's all assuming that Social Security remains solvent, of course. There's no guarantee that it will. Because more money is now going out to Americans in Social Security payments each year than is coming into it from wage taxes, it has been covering the gap with funds it set aside in prior decades in the Social Security Trust Fund.

In the Social Security Board of Trustees' most recent report, they calculated that -- unless Congress and the president get together to make changes in the interim -- the trust fund will be depleted by 2033. If that happens, the program will be forced to reduce every beneficiary's payments by 23%.

I still won't be eligible for benefits by 2033 (although I will be getting close). And to be fair, there's no knowing what's likely to change in the meantime. It's certainly possible Congress will at some point in the coming years pass a bill that addresses the looming shortfall in funds.

Still, even if the Trust Fund doesn't run dry in 2033, the Social Security program clearly has structural problems that don't seem like they're going away anytime soon, if ever. Sooner or later, as a larger number of Americans hit retirement age, there's going to be a problem with it that can't be fixed.

So, I'd rather take smaller payouts for as many months and years as I can while I can instead of postponing collecting anything for as long as possible, only to perhaps discover that the program is cutting payments by far more than 23%.

2. I've got a specific growth plan for my money

Starting to collect smaller Social Security payments earlier rather than holding out for bigger checks later doesn't necessarily mean I'll be spending this money when I get it, though. In fact, I'm planning not to be spending it. I'll be investing it instead, and I expect to earn a return on those investments greater than I'd get by leaving those funds in the Social Security Administration's hands.

Admittedly, it's not exactly an apples-to-apples comparison. Social Security benefits are effectively lifetime annuity payments. Once I start receiving those early reduced payments, though, they essentially become a bunch of little lump-sum payments, and it's up to me to make them last for a lifetime. It's not easy to know which path makes better financial sense.

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Some careful number-crunching done by several different experts, however, all points to the same conclusion: The effective annual rate of return on the income you forego by waiting to claim Social Security benefits is only between 2% and 6%, depending on your age. Other calculations put this effective annualized figure at about 2% to 3% above inflation rates, which still leaves you with roughly the same effective rate of return on postponing your payments.

Either way, I think I can do at least that well for myself in the market -- if not a bit better -- even after dialing back the amount of risk that I'll be willing to take with my investments at that stage of my life. Heck, even some super-safe money market accounts are currently yielding in the ballpark of 4%. Plus, I'll have access to that cash if I need it... something I wouldn't be able to say if I hadn't been taking those Social Security retirement benefits.

3. It will actually give me flexibility, work-wise

Finally, I'm willing to accept the smaller Social Security checks I'll receive by claiming early because I still intend to be working (at least part time) even after I initiate my benefits.

Contrary to a common assumption, you don't actually have to be retired to collect Social Security. You can simultaneously earn a paycheck and cash Social Security checks, too.

Yes, there are potential -- even likely -- impacts. Earning taxable wages while you're receiving Social Security benefits can reduce the amount of your payments. For example, for those below their FRA, in 2025, every $2 earned above $23,400 will result in a $1 reduction in your benefit for the year. If you earn enough money at a job, you could conceivably reduce your Social Security payments to zilch.

There are two important details to be aware of here, however. First, this rule doesn't apply once you've reached your full retirement age. After that, you get all of your Social Security benefits regardless of your work-based wages. And second, any months you don't get in benefits based on your wages have a positive impact on your future Social Security payments later. You're not permanently losing that money -- you're just exchanging it for slightly higher monthly payments down the road. And continuing to work even after you've claimed benefits could bolster your future payouts by virtue of the earnings history you'll still be accumulating as an employee.

More important to me, by claiming early and receiving Social Security benefits even though I'm still working, I'll have the option of working less at a time in my life when I might want to.

Make it work for you

Just because this plan works for me doesn't mean it makes the most sense for you. Your situation is likely to be at least a little bit different than mine. For example, you may not have the option of simply working less. My spouse and I have also made this plan with our unique household situation in mind. It's possible that the plans that will work best for you and your spouse are different. Health concerns may be more of a factor in your plan, for instance.

Whatever the case, just because waiting until you turn 70 to file for benefits will result in you collecting your biggest possible monthly Social Security payments, that doesn't necessarily mean that it's the smartest move in all cases. You should know, in fact, that the Social Security Administration's options for claiming anywhere between the ages of 62 and 70 are designed to give each beneficiary, on average, more or less the same lifetime net benefits, regardless of how old they are when they claim -- assuming that they live to an average age. The program simply condenses or spreads out these benefits payments based on when you start them.

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