Should Americans Take Social Security at 62 and Invest It? Viral TikTok Advice Sparks Debate

The latest trend on social media platforms like TikTok suggests that some finfluencers are recommending Americans to claim Social Security as soon as they are eligible at age 62 and to invest the monthly retirement benefits into stocks. This new investment strategy stands in stark contrast to the traditional advice to delay claiming Social Security for as long as possible — ideally until age 70 — in order to maximise monthly payouts.

Claiming Social Security at age 62 results in significantly lower monthly payments over a person's lifetime. However, these finfluencers argue that claiming early and investing the benefits into stocks can lead to substantial long-term gains. They cite the historical average annual return of approximately 7% on stocks after inflation, suggesting that such a strategy could be highly beneficial over time. It's important to note, however, that Social Security benefits are inflation-adjusted and considered a risk-free income source, unlike the stock market which can be highly volatile.

Mark Iwry, who previously worked at the Treasury Department, states, 'Social Security is the best annuity you can buy, but you can buy much more of it by waiting.' This emphasises the traditional view that delaying benefits increases the eventual monthly payout.

Early Claims Are Like Taking a Loan

Jeremy Ko, CEO of ShoreUp Retirement Solutions, explains that your inflation-adjusted Social Security benefit could be up to 77% higher if you delay claiming until age 70, compared to claiming at 62. He describes early claiming as akin to 'taking a loan', which must be repaid through lower benefits later in life.

For example, if someone receives $2,000 (£1,498) per month at age 62 and invests that amount annually in stocks, they could potentially amass around $977,000 (£731,904) by age 85, assuming a 7% return each year. On the other hand, delaying Social Security to age 70 and following the same investment plan might result in a total wealth of just under $830,000 (£621,782) by age 85.

What if Stocks Crash?

However, stock markets are unpredictable. If retirees experience an average annual loss of 3% after inflation, then claiming at 62 and investing in stocks could leave them with just over $290,000 (£217,249) by age 85. Conversely, waiting until age 70 would still see them with over $380,000 (£284,671) at that age, even with market downturns.

More People Claiming Social Security Amid Market Volatility

Data from the Social Security Administration (SSA) shows that approximately 2.9 million Americans claimed their benefits through September this year — a 13% increase compared to the previous year. The SSA attributes this rise partly to 'fearmongering', with concerns over the stability of Social Security prompting many to claim benefits early.

Factors such as former US President Donald Trump's claims that Social Security is riddled with fraud, alongside worries about the continuity of payments, have contributed to this trend. Finfluencers are exploiting these fears, urging their followers to invest in stocks, which have experienced significant volatility this year.

If Social Security benefits were to be reduced, it would be an indicator that the US economy is underperforming, which could further depress stock prices. For many retirees, Social Security remains essential for covering household expenses, leaving them little choice but to claim benefits as soon as they are eligible.

Strategies for Managing Retirement Income

In addition to Social Security, many individuals own stocks, bonds, or other fixed-income assets. Financial planners suggest that gradually selling fixed-income assets rather than stocks might help cover living costs while delaying Social Security claims to secure higher future payouts.

Michael Piper, a financial planner and creator of OpenSocialSecurity.com, advocates for this approach: 'Spending down your bonds is not only what you can do but what you should do.' He argues that this strategy helps keep risk levels stable over time and can be an effective way to manage retirement income.

While the viral TikTok advice promotes early claiming and stock investment, it carries significant risks. Retirees should carefully consider their personal circumstances and consult with financial professionals before adopting such strategies, especially given the unpredictable nature of stock markets and the importance of a secure income in later life.

Disclaimer: Our digital media content is for informational purposes only and does not constitute investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks, and past performance does not guarantee future returns.