Struggling against the pressures of rising inflation, concerns about an upcoming recession, and uncertainties surrounding the future of Social Security, an increasing number of employed Americans are contemplating an early claim of their Social Security benefits while remaining in the workforce. This article explores the driving factors behind this emerging trend and dives into the advantages and drawbacks of such a crucial decision.

Confronted with these economic uncertainties, a great number of Americans are pondering the prospect of accessing their Social Security benefits prior to attaining their full retirement age. According to a Nationwide Retirement Institute survey conducted in 2022, 42% of participants are contemplating this course of action, marking an increase from the 36% reported in 2021.

Workers who have contributed to the Social Security system have the choice to initiate their benefit payments as early as age 62. Nevertheless, opting for early Social Security benefits can result in a significant decrease in the monthly payment, potentially reaching up to a 30% reduction compared to what they would receive at their full retirement age, which typically ranges from 66 to 67, depending on their birth year. In contrast, deferring the claim of benefits beyond the full retirement age can lead to an 8% increment in the monthly payout for each year of postponement, peaking at age 70.

As of February 2023, the average monthly Social Security benefit for all retirees stands at $1,693.88. On the contrary, the average benefit for a 62-year-old retiree in the same year is $1,247.40, and for those at the full retirement age of 67, it amounts to $1,782. During a 20-year retirement span, the monthly variance of $534.6 accumulates to more than $128,000 in additional retirement savings, not factoring in potential adjustments for inflation to keep income in line with rising living costs.

It’s critical to note that early Social Security collection isn’t inherently disadvantageous. Many individuals are compelled to claim benefits early due to circumstances like corporate downsizing, health issues, age-related hiring challenges, or caregiving responsibilities for family members.

The “break-even” point, where the total benefits collected at full retirement age surpass the amount obtainable by starting early, generally occurs around age 80, according to financial planners. Using the average benefit amounts for this year, someone who starts collecting benefits at 62 would accrue over $254,000 over 17 years, eventually exceeding the amount they would receive by waiting for the higher full-retirement benefit. 

Looking ahead to 2040, delaying the benefits would result in a modest increase of over $2,000 in total additional income (excluding inflation adjustments).

Another factor to consider is the potential tax implications. While Social Security benefits themselves are not taxed, one downside of opting for early benefit collection is that a significant number of recipients continue to work, potentially subjecting a part of their benefits to taxation. This tax liability extends to all individuals collecting benefits while earning additional income.

For single tax filers who earn more than $25,000 in combined income, 50% of their Social Security benefits become subject to taxation, up to a limit of $34,000 in income. Above this threshold, 85% of their benefits become subject to taxation. For joint tax filers, the corresponding thresholds are $32,000 and $44,000. Combined income encompasses a taxpayer’s adjusted gross income, nontaxable interest income from bonds, and half of their Social Security benefits.

In conclusion, the number of workers choosing to claim Social Security benefits in their early 60s is on the rise, influenced by various factors. Every individual’s retirement journey is unique, and it’s important to assess your specific financial needs and apply for Social Security accordingly. If you choose to continue working while receiving benefits, be sure to estimate the possible tax consequences.

For robust retirement planning, consider consulting a financial advisor. They can help you navigate the complexities of retirement, crafting a personalized plan that aligns with your goals, risk tolerance, and timeline.