Early Retirement and Investing

Posted in Employment, Social Security

Many individuals take an early retirement, at age 62, the youngest age at which you can currently receive your Social Security retirement benefit, thinking that they can get a better return on their money by investing the amount they receive from Social Security.  Most retirement experts do not advise this course of action.  First of all, if you take your retirement benefits before age 66 (the current “full retirement age” for Social Security) you will receive a lower amount than if you wait until age 66.  In addition, you will be stuck at this lower amount as long as you receive benefits.  Any higher return you might anticipate receiving from investing in the stock or bond market, relative to the amount you receive from Social Security, is not without risk.  If you invest in a safe asset, such as a Treasury bill, you are unlikely to get more than the approximately 3% return that Social Security incorporates when it raises your benefits as a reward for delaying in taking them.

If you wait until age 70 to take your retirement benefit, your Social Security benefit will increase by 8% for every year between age 66 and age 70 that you postpone taking the benefit.  In addition, if you continue to work beyond age 66, you will continue to contribute to your retirement fund, thereby increasing the base amount of your monthly income benefit.