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Published: Dec 06, 2022 7 min read
A person is playing a hand of poker using the Social Security card to cash out big
Money; Getty Images

What happens if your investments are down just as you're heading into retirement? The nest egg you’ve been building for decades could have taken a major hit, and pulling it out now locks in that loss.

The advice to delay taking Social Security as long as possible can be a good strategy for people without other savings if they are still able to work. But if you have retirement savings and no employment income, taking Social Security early can give your investments time to rebound and give you a better quality of life in retirement.

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Early Social Security claiming affects your monthly payment

If you were born after 1960, your full retirement age for Social Security benefits is 67, and you can take Social Security retirement as early as 62. Your monthly payment amount from Social Security is determined by what you’ve paid into the system through payroll taxes. To find out your personal monthly benefit at full retirement age — aka your Primary Insurance Amount — create a My Social Security account at ssa.gov.

You get 70% of your monthly benefit at 62, 100% of your monthly benefit if you wait until 67, and 124% if you delay until age 70.

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Break-even points for claiming Social Security

The conventional advice is to wait as long as possible to claim Social Security so you'll get the increased benefit amount. In fact, you may get less over your lifetime if you hold off claiming benefits, depending on how long you live. Someone who delays claiming at 67 has to live to at least 78 and 8 months to get more over their lifetime than if they’d taken it at 62. Someone who waits until 70 has to live to at least 80 and four months to get more than if they’d taken it at 62.

The chart below gives a breakdown of lifetime benefits based on the age you begin claiming benefits.

If you claim at 62 If you claim at 67 If you claim at 70
Monthly benefit amount $1,400 $2,000 $2,480
Lifetime benefits by age 67 $84,000 (5 years at $1,400/month) $0 (haven’t claimed yet) $0 (haven’t claimed yet)
Lifetime benefits by age 70 $134,400 (8 years at $1,400/month) $72,000 (3 years at $2,000/month) $0 (haven’t claimed yet)
Lifetime benefits by age 78 $252,000 (15 years at $1,400/ month) $264,000 (11 years at $2,000/month) $238,080 (8 years at $2,480/month)
Lifetime benefits by age 80 $302,400 (18 years at $1,400/month) $312,000 (13 years at $2,000/month) $297,600 (10 years at $2,480/month)
Lifetime benefits by age 85 $386,400 (23 years at $1,400/month) $432,000 (18 years at $2,000/month) $446,400 (15 years at $2,480/month)

Waiting to take benefits may not make sense for someone who doesn’t expect to live long enough to break even. If you have other investments, taking benefits and allowing your investments to grow will likely net you the most over your lifetime, especially if you retire during a stock market crash.

Understanding life expectancy

Nobody knows exactly when they’ll die, and thinking about it isn’t pleasant. Numbers get thrown around all the time, which can be a bit misleading. For example, life expectancy at birth fell to 73.1 for men and 79.1 for women in 2021 according to data from the Centers for Disease Control. Using just this data point, it doesn’t make sense for anyone to wait to take Social Security. However, overall life expectancy is dragged down by early mortalities.

Someone who makes it to 62 can expect to live to 85 and one month, according to data from the Social Security Administration that was last updated in 2019. But this data point doesn’t yet reflect the high mortality rate for people over 65 during the Coronavirus pandemic. So how long can you really expect to live and how can you time Social Security accordingly?

Look at your own family medical history. If you’ve lived a similar lifestyle to your relatives, think about how long they’ve lived. It can be an easy way to predict your own lifespan.

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How long does it take investments to rebound?

“We don’t have a crystal ball, and past returns can’t guarantee future performance,” says Miriam Whiteley, a certified financial planner (CFP) and owner of LifeCraft Financial Planning in Eugene, Oregon, and Certified Member of the Alliance of Comprehensive Planners.

That said, the average bear market lasts 16 months, according to a Wells Fargo Investment Institute study of bear markets since World War II, and the average 12-month return after the end of a bear market is 43.4%.

While it’s reasonable to expect good returns on your investments, the amount of time your money is invested also matters. Here’s how taking Social Security benefits at age 62 instead of cashing out some of your investments would impact a portfolio of $84,000 given an 8.2% return. Left untouched, in five years when you are 67, that amount could increase to $124,570 with no additional contributions. And in 16 years, that $84,000 could be worth $296,425.

Your investment gains have the potential to more than make up for the difference in monthly payment amounts by the time you turn 80.

Social Security has a much lower rate of return, but that rate of return is guaranteed while the program is still solvent. An increase of 6% per year between ages 62 and 67 and 8% per year from 67 to 70 may not be the gains you’d have in a stock market bouncing back from a recession, based on past data, but nobody can predict the future.

“Time is an investor’s friend,” says Wes Moss, CFP and managing partner at Capital Investment Advisors in Atlanta. “If taking Social Security earlier allows for lower portfolio withdrawals, and more time for retirement assets to be invested, the probability of investment success should theoretically rise.”

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