Cash In Social Security Early?

Gary is considering taking Social Security at 62 instead of waiting a few more years. Should he go ahead and take the penalties for withdrawing it early?

QUESTION: Gary in Illinois has been self-employed for 15 years, and he had planned to stay with it for a few more years. He’s considering taking Social Security at 62 instead of waiting a few more years. Should he go ahead and take the penalties for withdrawing it early?

ANSWER: It’s a mathematical formula. Basically, how much is it going to cost you in the future years after 66 versus the $30,000 you received prior to 66. The longer you live, the less appealing this idea is going to be mathematically.

Not counting interest, we could just say $30,000 divided by $450, which is 66 months—five years and six months. That’s not very many years at all really. After that, you’re losing $450 a month. It’s pay me now or pay me later.

You are going to save all of the interest or gain all of the interest you used to invest this $30,000, so that skews this. If you live to 80, you’re probably going to do a break- even counting interest. Of course, that’s also assuming Washington figures out a way to keep Social Security open. I’m not threatening that the sky is falling, but it just is a problem. For the first time ever, we have to actually ask the question, will these idiots in Washington actually be able to pull this off? Right now, it doesn’t look like anybody up there can add, whether they’ve got an R or a D.

I’m doing it because I want my house paid off, and I’m betting Social Security or you is going to die before 80. If I’m wrong a little bit, you had the peace of mind of your house being paid off all of those years. And all joking aside, that’s probably worth it, too.

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