Medicare eligibility begins at 65, and you get the same coverage no matter when you enroll. But with Social Security, you get choices. You can claim benefits as early as age 62 or delay your filing until the age of 70.
62 happens to be the most popular age to sign up for benefits. If you’re thinking of going this route, here are a few key things you need to know.
1. You’ll slash your monthly benefit for life
Your monthly Social Security benefit is based on your earnings during your highest-paid 35 years in the workforce. And you’re entitled to that complete benefit once you reach full retirement age, or FRA.
FRA is either 66, 67, or 66 and a specific number of months, depending on your year of birth. But for each month you claim benefits ahead of FRA, they’ll be reduced on a permanent basis. If your FRA is 67 and you sign up at 62, you’ll lose 30% of your benefit, so that’s a hit you’ll want to make sure you can afford to take. And if you don’t have a lot of retirement savings, you may want to sign up at a later age.
2. You may come out ahead financially if you don’t live very long
Filing for Social Security at 62 will result in a lower monthly benefit, but it won’t necessarily result in a lower lifetime benefit, especially if you pass away at a relatively young age. In fact, if your health is poor going into retirement, it could pay to sign up for Social Security as early as possible.
Say you’re entitled to a $1,600 monthly benefit at an FRA of 67. If you file at 62, that monthly benefit shrinks to $1,120. However, you’ll also get benefits five years sooner. And if you wind up passing away at the relatively young age of 76, you’ll come away with an extra $15,360 in your lifetime by filing at 62 rather than 67.
3. You’ll risk having benefits withheld if you’re still working
You’re allowed to collect Social Security and work at the same time, but if you do so before reaching FRA, you’ll risk having benefits withheld temporarily if your earnings exceed a certain threshold. Now that threshold changes from year to year. Right now, it’s $18,960, but it could rise in 2022. But in 2021, once your income exceeds that threshold (assuming you won’t reach FRA this year), you’ll have $1 in Social Security withheld for every $2 you earn.
If you’re still earning a sizable paycheck from work, you may want to hold off on claiming Social Security rather than rush to file at 62, because you’ll not only slash your benefits, but also, risk having additional money withheld.
There are plenty of good reasons to sign up for Social Security at the earliest age of 62. Just make sure you know what you’re getting into before going that route. The last thing you want to do is lock in a lower monthly benefit for life and regret it throughout your retirement.
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