When you’re a financial adviser, you soon realize that half of the job is math; the rest is loopholes and therapy. These words ring truest when deciding on when to activate Social Security, which can be a tough decision.

You may decide to delay starting Social Security income upon retirement because the longer the wait, the larger the check. It may feel as if you would be leaving money on the table if you start it sooner. On the surface, this seems like reasonable and rational thinking. However, as with most of life, it’s the little … intangible things that have the largest impact.

While some financial advisers tend to advocate the more mathematical, delayed-gratification approach, some tend to fall on the pragmatic side of this issue for three main reasons. The first rationale is claiming early allows you a better chance to break even on your Social Security benefit. Secondly, that it is better to spend the government’s money first rather than your own. Finally, maximizing resources to ensure you pack as much enjoyment in early retirement is important because you never know what will happen.

The ABCs of Social Security

There is the option to claim Social Security at any time between ages 62 and 70. Although the average Social Security benefit is $1,825 a month based on beneficiary data as of December 2022, the exact amount of benefit depends on your lifetime earnings, adjusted for inflation and the age when benefits are claimed.

Essentially, the earlier Social Security is claimed, the lower the benefit. That means that waiting longer, the higher the benefit will be until age 70, at which point the benefit no longer increases. Claiming at 62 reduces the benefit amount by as much as 30% from what you would get at your full retirement age, while waiting until age 70 can increase your benefit by 8% a year.

Full retirement age is pegged to the year of birth. If you turn 62 in 2023, your full retirement age is 67. Full retirement age is the age at which you receive 100% of your benefit. That benefit is reduced if claimed earlier and increased if claimed later. Despite the math that favors later claiming, 62 is the most popular age at which to claim Social Security.

Before getting into the rationale in favor of the “claim-early” argument, here is one caveat to discuss. For those planning to work in retirement — in other words, after turning 62 — there is little to no benefit in claiming Social Security at that age. Why? Because for every $2 earned over the 2023 earnings limit of $21,240, Social Security will claw back $1 of that benefit.

Barring this, here is the rationale in favor of claiming early:

Reason #1: Ensuring how to break even on your benefit

Social Security is a mandated retirement plan. There is no choice but to contribute money in the form of payroll taxes into the Social Security system, just as each employer has. However, Social Security is not a system of individual accounts. Instead, the payroll taxes that fund Social Security are aggregated, and benefits are paid from one big pot of money.

In more direct words, once contributed, it is no longer “your money” it is “everybody’s money.” That means if you pass away early, you can’t take it with you, and your family can’t inherit it. The money stays in the pot for everyone else.

This may seem morbid, or cold, but you really need to think about what you would lose if you died before you break even on Social Security. But wait, what does “breaking even” mean when it comes to Social Security? The break-even age is the point at which the dollar value of claiming later surpasses the dollar value of claiming early.

Essentially, when claiming early, a smaller benefit is collected for a longer period of time, and when claiming later, a larger benefit is collected for a shorter period of time. There’s a point at which the benefits of claiming later outweigh the benefits of claiming early, which is the break-even point.

At this point, many financial professionals will take out their actuarial tables and mention that the average 62-year-old woman born in 1961 will live to be 86 and 4 months, while the average man born in 1961 will live to 83 and 5 months. That makes it seem like a no-brainer.

However, that doesn’t account for individual variations. Even if you exercise regularly and consume a healthy diet, there is no way to predict exactly how long you are going to live. We all have friends and relatives who have gone to their ultimate reward far earlier than they thought they would. There’s no way to know how long you are going to live and whether you are going to hit your break-event point. That is a strong argument in favor of claiming as early as you can.

In short, the argument to claim early is to get out of Social Security what you put in.

Reason #2: Spend the government’s money first

Why cannibalize your own nest egg unnecessarily?

This is one opinion for claiming Social Security as early as possible. Because if you retire at age 62 and need income to pay bills, without claiming Social Security, you’ll have to draw that money from your retirement savings. Every year that you wait to claim, you will then be spending down your savings at an accelerated rate, rather than spending money from your government Social Security benefits.

Let’s use simple math (assuming zero growth or loss in personal accounts).

Hypothetical scenario 1: Say it’s determined you need $5,000 a month to live on in retirement. Let’s also assume you have a pension that will pay $2,500 a month as well as a Social Security benefit of $2,000 if activated immediately:

   $2,500 pension
+ $2,000 Social Security
= $4,500

The remaining $500 would need to come from savings, in the form of an IRA, 401(k) or brokerage account. During the first five years of retirement, this comes to $30,000 from your savings. In many cases, that is fairly doable.

Hypothetical scenario 2: We still have the same $5,000 monthly need and the same pension of $2,500, but now we decide to delay Social Security by five years.

   $2,500 pension
+ $0 Social Security
= $2,500

This leaves a $2,500 deficit that your own savings will need to make up every month. Over five years, that would be $150,000 … gone … in the first five years of retirement.

Won’t my Social Security be larger in five years? Yes, this is true. A $2,000 benefit at age 62 will likely be something akin to $2,675 at age 67. So, let’s do the math on this.

Break-even between Scenario 1 and 2 (assuming ZERO market growth or loss). Social Security at age 67 of $2,675/mo – Social Security at age 62 of $2,000/mo = $675/mo

401(k)/IRA drawdown scenario 2:  $150,000
401(k)/IRA drawdown scenario 1: – $30,000
Difference:                                         $120,000

$120,000 divided by $675 = 177.78 months OR 14.81 years.

Essentially, you would be 82 years old before the break-even point! Certainly, one can see how the math favors the early Social Security option.

Now, if considering the “time value of money” and “opportunity cost” principals, it’s almost a no-brainer to take Social Security as soon as you fully retire.

In more practical terms, increasing your income early on by claiming Social Security as soon as you retire tends to insulate you from a potential financial mishap. Think about it: Every month that you don’t take Social Security, you are paying your bills on less income than you otherwise could have. That electric bill, cable bill, gas bill, property tax bill and so on won’t pay themselves. All the while, cannibalizing your nest egg ensures there will be less available for later-in-life emergency needs.

Reason #3: Gaining confidence

The final reason that it can make sense to draw Social Security earlier is the confidence you can gain from securing an extra source of income right off the bat. Let’s be honest: There is no way to know how long you will be healthy in retirement. The 60s may, in some ways, be the new 30s, but the older you get, the higher the chance that a chronic or fatal illness will strike.

If you’re like most people, you’ve got a bucket list that you can’t wait to start on as soon as you retire. Maybe you want to spend the summer in Italy or take your kids and grandkids on a Disney Cruise. Whatever it is that you’ve been waiting to do, you need to be able to do it. From this perspective, it makes little sense to wait to claim Social Security benefits.

Sure, maybe you will be just as healthy at 67 or 70 as you are at 62, but there’s no way to know that. According to the U.S. National Council on Aging, older adults are disproportionately impacted by chronic diseases, including diabetes, heart disease, and arthritis. In fact, 95% of adults over 65 have at least one chronic health condition, while 80% are affected by two or more. Older adults die at a higher rate from illnesses such as COVID-19, strokes, cancer, respiratory diseases, and Alzheimer’s disease.

Many pre-retirees need to spend carefully. That’s why it makes sense to maximize the take-home income early in retirement so you can check as many items off of that bucket list as possible in the early years of retirement, while you are most likely to be at your prime, physically, mentally, and emotionally.

Remember, you can’t take Social Security with you, and it can’t be inherited by your family. Your personal savings can be transferred to someone you love. Why burn that money down first and unnecessarily fast on the chance of a slightly higher government benefit?