Does It Make Sense to Take Social Security at 62 to Buy Dividend Stocks?

The right time to start taking out Social Security benefits will differ for just about everyone. Indeed, depending on one’s situation, the optimal age to start opting in might be somewhere in the middle, rather than the extremes. Either way, meeting up with the financial adviser seems like a smart way to better understand the trade-offs between opting in younger rather than later.

In a prior piece, I highlighted the opportunity costs of waiting too long, but did acknowledge that waiting was the best financial move on paper. Of course, not everybody is going to be in decent enough shape at the age of 70 to start spending down considerable sums of the nest egg. In fact, there might even be a risk that one would not be able to do some of the things on their bucket list.

Investing Social Security payments in dividend stocks? It’s not as absurd as it seems

In this piece, we’ll have a look at a scenario that might just allow one a shot at scoring a return that’s greater than the 8% that one would have gotten by delaying Social Security by a year. Indeed, the 8% annual boost per year that one delays Social Security is one that’s free from risk. And, it’s pretty hard, if not impossible, to land 8% when not taking on any risk.

Indeed, there really is no free lunch on Wall Street, given that higher risks are needed for a shot at higher rewards. For those who’ve considered opting in and investing the difference, though, perhaps in dividend stocks, there is an intriguing case for opting in early and keeping one’s flexibility open. If not for a shot at greater returns, perhaps to improve one’s liquidity position.

When would it actually make sense to opt into Social Security at 62 while investing the difference?

For those who don’t quite need the full Social Security check but would like to use a portion of it to spruce up their lifestyle while investing the difference, opting in early can make a lot of sense. Of course, by doing such, one will forego a handsome risk-free return and have to take a considerable amount of risk by investing the difference in equity markets. Of course, if you were going to wait until the age of 70 before opting in, you’ve got an eight-year time horizon. And that’s quite a long time to be in equities.

So, if you don’t see yourself spending much, if any at all, of the Social Security that’s coming in, investing in dividend stocks can be a move to bring up with one’s adviser. Of course, it’s a riskier decision, to say the least, but if one doesn’t need the cash and believes they can do better in markets (stocks have typically returned 9-10% over time, though markets have been much hotter in recent years), opting in sooner and investing for the long term can be a winning (though much riskier) decision, at least in my opinion.

Stocks have a good shot of doing well over the next 8-10 years. Doesn’t that make investing Social Security payments in dividend stocks a more worthwhile move?

Additionally, if you’ve always been a risk taker and firmly believe that the AI revolution will lead to significant productivity growth, which, in turn, would propel markets, perhaps investing for the long haul makes sense.

And if you invest with a long-term horizon and full-on growth in mind as you aim to leave a legacy behind for the next generation, perhaps opting into Social Security a few years earlier while investing in stocks can make sense, provided you’ve got experience with investing in equities and can handle those inevitable ups and downs that you’ll need to ride out along the way into your golden years.

As always, if you’re considering investing your Social Security check, do check in with an adviser to get the green light, as it’s definitely not the best move for everyone who faces the dilemma once they turn 62.