Maximizing your Social Security benefit can be a complex decision, as it depends on several factors like your life expectancy, current needs, and financial goals. While the highest monthly payment comes from waiting until age 70 to claim, some individuals wonder if claiming early at age 62 and investing the payments could be a better strategy.

It’s an interesting idea, but there are several challenges that make this approach harder to pull off successfully. The timing of when you start receiving Social Security payments will have long-lasting effects on your finances, so it’s crucial to consider all options carefully.

How Timing Affects Social Security Benefits

The longer you wait to claim Social Security, up until the age of 70, the higher your monthly benefits will be. For instance, a single person born in October 1967 and earning $200,000 annually will receive a monthly check of $2,794 if they claim at age 62, according to AARP.

If they wait until their full retirement age of 67, their monthly check increases to $3,992, and by age 70, it would be $4,950. While there are valid reasons to take Social Security before age 70—such as a shorter life expectancy—delaying your benefits results in an 8% increase in monthly payments for each year you wait between full retirement age and age 70. Not only will your checks be larger, but you will also benefit from Social Security’s cost-of-living adjustments, which would be more valuable with the higher payment.

However, waiting until age 70 is just one of many claiming strategies. Your success with this approach depends heavily on your personal life expectancy. If someone claims at age 62 and lives longer than expected, they could end up collecting more benefits overall than if they waited until age 70.

The Challenge of Claiming Early and Investing

Let’s examine a hypothetical situation to explore the potential of claiming early and investing the benefits. Suppose two individuals, both expected to live until age 90, choose different strategies.

The first, “Retiree A,” claims Social Security at age 62 and invests the $2,794 monthly benefit. Assuming an annual return of 8% on the investments, Retiree A would accumulate around $361,796 after eight years. This seems like a solid start. However, if “Retiree B” waits until age 70 to claim, she would receive $2,156 more per month, or $25,872 annually. This means that Retiree B’s higher payments would eventually surpass Retiree A’s investment gains within 13 years. By age 90, Retiree A would fall behind by about $181,104.

What Could Go Wrong?

Retiree A’s situation could worsen if he doesn’t invest the full amount or withdraws from the account prematurely. If he spends the Social Security checks or dips into the investment account, the power of compound growth is reduced, and his returns will suffer. Additionally, the assumption of a steady 8% return year after year is unlikely in reality. A down year or two in the market could significantly reduce the final balance.

Another risk is that many people aren’t comfortable with the level of risk required to achieve the higher returns needed to make this strategy work. Aggressive investing can be volatile, and some may panic during market downturns, selling investments at a loss, which would further hurt their chances of success.

Making the Right Decision

While waiting until age 70 to claim Social Security may be the best option for many, it’s not the right choice for everyone. If you’re considering claiming early at age 62 and investing the proceeds, it’s important to understand that success is not guaranteed, and many variables could make it difficult to achieve your goal. Consulting with a wealth advisor can help you determine the best strategy for your unique situation and long-term financial goals.