There’s a reason age 62 has long been a popular one in the context of signing up for Social Security: It’s the earliest opportunity you have to start getting your benefits. And when you’re looking for a chance to pad your monthly income, it’s hard not to submit that benefits application.
The problem with claiming Social Security at age 62, though, is that you’ll slash your benefits for life. And that could prove quite problematic if your nest egg isn’t much to write home about.
Do you have enough savings to manage with reduced benefits?
Your retirement income shouldn’t only come from Social Security. Rather, it should come from a different source, including money you have tucked away in a retirement savings account.
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But what if your savings balance is far from robust? As of late 2022, the average IRA balance among all savers was just $104,000, according to Fidelity, while the average 401(k) plan balances was a comparable $103,900.
Now, to be fair, retirement plan balances are down quite a bit these days due to 2022’s extremely volatile stock market, which sorely underperformed and left many investors reeling. But even so, prior to 2022, the average IRA balance was only $135,600, while the average 401(k) plan balance sat at $130,700.
Now these numbers represent savings balances across all generations. And it may be that older workers have more money socked away for their senior years than their younger counterparts.
But let’s say you’re nearing retirement with an IRA or 401(k) worth roughly $104,000. In that case, you’re apt to become quite reliant on Social Security once your career wraps up and your regular paycheck goes away. And if you slash your benefits by filing for them at age 62, you might struggle financially.
Remember, you’re not entitled to your full monthly Social Security benefit based on your earnings history until full retirement age arrives. That age is either 66, 67, or somewhere in between, depending on your year of birth.
If you claim Social Security at age 62, your benefits will take a 25% to 30% hit. That may not be a problem if you have, say, a $1.5 million nest egg. But if your savings balance is closer to the averages mentioned, you may want to think twice before signing up for Social Security as early as you possibly can.
Also keep in mind that even if you are looking at a larger nest egg than most, you never know when your savings might run out on you. The stock market could suffer an extended losing streak, or you might end up withdrawing from your retirement plan too aggressively, thereby spending down your money at a faster rate than you should be.
The upside of locking in a higher Social Security benefit is that you’re guaranteed that sum throughout your retirement. So while the idea of filing at age 62 might hold lots of appeal, claiming benefits that early is a move you might easily regret after the fact.
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