Pros and Cons of Taking Early Social Security

early social security

You can begin taking early social security payments as young as age 62. Most people start taking it around age 66. Some people believe that you should wait until age 70 if you’re in a position to do so. What’s the right answer? It’s hard to say. There are some big pros and cons to taking that money early. Understanding those can help you make the right decision for your own retirement.

What Happens When You Take Early Social Security?

Generally speaking, you’re able to get your “full retirement” when you reach around age 66. (This varies slightly depending on individual circumstances.) If you take that money early, then you don’t get the full amount. Therefore, your monthly Social Security payments are lower than they would be if you waited.

On the other hand, you start to receive that money sooner. If you reach age 62 and really need that Social Security income, then you might find that it’s worth it to take the lower monthly amount. You’ll start getting that monthly check years before you would if you waited until reaching full retirement age.

So, in terms of the most basic pros and cons, taking your money earlier means:

  • The benefit is that you start receiving your money sooner.
  • The drawback is that you get less money per month throughout your retirement.

Social Security May Change in 2035

The Motley Fool makes a great case for taking early Social Security, which is that big changes may await when it comes to social security. In fact, Congress may cut benefits by 23% for all people receiving social security from that point forward. Therefore, if you’re thinking about retiring between now and then, it might be worth it to take the money early.

Yes, you’ll get less per month when you do that. However, you’ll earn the full “lesser” amount every year up until 2035. The longer you wait to start taking payments, the less time you have to accrue money before that potentially huge Social Security cut.

Of course, we don’t actually know for sure what decision Congress will make. There’s a chance that they won’t make that cut. Or it might not be as big. Therefore, taking early Social Security is a risk. You may opt for the lesser monthly amount now, hoping to accrue more before the big cut, only to find out that the big cut doesn’t happen. You’ll still get the lesser monthly amount. It’s not like you can go backwards in time and “take back” your decision to take early Social Security.

So, taking the money early means:

  • You might get more money overall by cashing out as early as possible before a big cut.
  • If the big cut doesn’t happen, then you might not have made as much as you potentially could have.

We Don’t Know How Long We Will Live

If you had a crystal ball then it might be easier to decide when to take your money. If at age 62 you knew that you only had ten years left to live, then obviously you would take early Social Security. On the other hand, if you knew that you were going to live another thirty years, then you might opt to keep on working until you could completely max out that retirement income.

Unfortunately, there’s no way to know. So the pros and cons really depend on factors that we can’t entirely know or control. All that you can do is make the best decision possible with the information that you have as you reach retirement age. Consider your health and likely longevity based on family history and other factors. Think about how much money you’ll likely get if you take early Social Security vs. the full amount. Weigh what would happen if Congress cut that amount in 2035. Then do your best to decide how the pros and cons balance out.

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When to Invest in TreasuryDirect.Gov: Savings Bonds, Notes, and More

treasurydirect.gov

TreasuryDirect.gov is one of the simplest tools that you can use to park small or large amounts of cash. You can make your money work for you. And yet, many people have overlooked this tool. If you’re not familiar with it or haven’t made the most of it, yet, then you might want to take a gander. There’s a good chance it’s a smart tool for you to use to diversify your investments and boost your savings.

What is TreasuryDirect.gov?

TreasuryDirect.gov is a website that allows you to quickly begin investing your money. You can use it to purchase:

  • Treasury Bills
  • Treasury Notes
  • Floating Rate Notes
  • Treasury Bonds
  • Saving Bonds
  • Treasury Inflation-Protected Securities (TIPS)

The site cuts out the middle man so that you make the purchase directly from the government.

It’s Right For You If You Are A Beginner Investor

If you are new to investing, then this is a great place to start. Once you’ve put aside some emergency funds in a savings account and maxed out your retirement contributions, you need to take a next step. Treasury investments are an easy and smart next step. They are backed by the government, so they are quite secure. Here are some other reasons that beginner investors like them:

  • You earn more money than you would with a regular savings account but the risk is not much higher.
  • There are several options for investing so you get your feet wet with trying out different choices.
  • There are no fees, and you might not even have to pay taxes on the interest you are. It’s financially smart.
  • Plus you can start investing with just small amounts of money. You can get bonds with as little as $25.

If You May Need Access To Your Money Then It’s A Good Time to Invest

One of the reasons that people keep large sums of money in savings is because of the fear that they’ll need that cash. You may have a big expense planned, such as buying a house. Or perhaps you work in the gig economy and aren’t sure how long your income will stay steady. Either way, you don’t want to get your money all tied up for years in long-term investments. So you stick it in savings.

However you don’t earn much interest with a regular savings account. You get the security of being able to always access your funds but you lose out on growing your money. TreasuryDirect.gov investments offer you a little bit more of a financial gain. However, your money isn’t tied up for long periods of time. You can make investing choices through the site that allow you to easily get your money out without penalties.

TreasuryDirect.Gov is Good if You Have a Lot of Cash to Park

Perhaps you just got a big inheritance. Wherever it came from, you have a big sum of cash. You want to earn a decent return on it. However, you don’t want to get too hard at tax time. TreasuryDirect is a good answer. Oftentimes the investments don’t require you to pay taxes, particularly state taxes, so you get to keep what you earn. The more money you invest, the more money you’ll get back. So even though you can start these accounts with as little as $25, they’re a great choice for people with significantly more money to invest.

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A Personal Finance Checklist To Kick Off Your 30’s

A personal finance checklist can help you achieve financial goals.

A personal finance checklist can help you achieve future goals.

A personal finance checklist can be useful to ensure you are on well on your way to achieving financial success (or even simply evaluating where you stand).

Your 20’s are a great time to figure your life (and yourself) out. By the time you are 30, though, you should ideally have much of your life in order. Today’s millennials do tend to take longer to get married and start their lives, as recent reports show, but in order to set yourself up for your later years, you should analyze and improve your finances now.

I just celebrated my 29th birthday at the end of April, which encouraged me to reflect on my life experiences thus far and consider the future. The last decade was focused on enhancing and nurturing my career and my personal life along with developing myself as a full-blown adult. Basically, I spent the last 10 years getting my life in order.

As I prepare for a new decade, it’s time to take the next steps for my future. One of the first steps includes using my own personal financial checklist to accomplish over the next year in order to achieve more of my financial goals. With each milestone, my monetary ambitions change, and yours should too. I’ve already accomplished some of these topics and others still need improvement. As you begin to map out your own, this personal finance checklist will hopefully help you in more ways than one as well:

Budgeting 

  • If you have not already created a budget for yourself, you should do this first and foremost. Tracking your income and expenses is definitely not fun, but it does help to keep you in check and help you build wealth.

Reduce your debt 

  • By the time I was 27, I had paid off my car and two credit cards. My credit score not only went up significantly following these achievements, but I was able to use the money I was using toward this debt to increase my savings account. While I still have my student loan debt I am working on, my credit cards were my top priority to pay off as their interest rates tend to be higher than student loans. I’ve been able to pay more than the minimum amount each month over the last few years with less debt hanging over my shoulders though.

Save for retirement 

  • If you have not been lucky enough to have a 401(k) or similar retirement plan with your job, it’s time to open your own Roth IRA or another retirement savings account option. If you do have a 401(k) with your employer, start contributing more toward this fund. Ask your employer about a match program they may offer and do what you need to do in order to take advantage of this benefit. If you can swing it, you could invest in a separate plan as well as following one with work.
    • How much should you put toward retirement? A common recommendation is a minimum of 10% of your income. If that does not seem feasible at this time, especially with other savings plans you may be contributing to, such as an emergency fund, shoot for 2-5% and work your way up to the 10% goal.

Diversify your financial portfolio

  • As you reach your 30’s, this becomes important to include on your finance checklist. Mix up your investments through stocks, bonds and the like. Before going into such a venture blindly, be sure to do your research and even consult with a financial adviser or stock broker.  Buying stocks is pretty easy – you just need a brokerage account.

Plan for the future

  • No one ever wants to really think about dying or life emergencies, but the fact of the matter is, anything can happen to any of us at any time. As you begin to build financial stability, consider starting a family and reach more life milestones, you will want to contemplate the following:
    • Life insurance. Having a life insurance plan for you (and your spouse, regardless of whether or not he or she works) will be imperative in making any hurdles life throws your or your family’s way a little easier to deal with.
    • Naming beneficiaries on your accounts. Appointing your assets to various people in the event of your passing may not seem necessary at this point in your life, but you need to be prepared for anything. If you are not married and do not have a family of your own, you will want to consider leaving your financial accounts and any assets to your parents or siblings. Your beneficiaries will most likely change and need updated multiple times throughout your life, but get it started now so that it is not a worry later.
    • Estate planning. You do not need to be wealthy in order to start your estate planning. Get a power of attorney and a health care proxy to act on your behalf should you become debilitated and/or lose the ability to make your own decisions. Doing this will ensure you still have a full say in what happens particularly to you and your family.
    • Disability insurance. Regardless of age, you should be prepared for any event in life. If something happens that causes you to no longer be capable of working, disability insurance will provide you with a source of income.

Have a financial plan with your significant other

  • Married or not, live-in couples and relationships that openly discuss finances tend to have a higher success rate in surviving the partnership. Talk to your significant other about a financial plan and goals and compromise when needed.
    • Not married or living with a significant other? Create your own financial plan and be as specific with it as possible.

While a personal finance checklist may seem a bit daunting, it does not have to be all work and no play. It is still important to remember to splurge on yourself from time to time. As you become more financially responsible (and stable), you will find this much easier to do without placing much stress on your bank account.

Start a new decade off right with this personal finance checklist as a beginning point. If you are already in your 30’s and have yet to incorporate any of the above items, take some time to begin including these in your life goals and plan.

What would you add to the list?