Many people have a hard time deciding when to claim Social Security, and for good reason. That's because your filing age will partially determine how much of a monthly benefit you get for life.
You're entitled to your full monthly Social Security benefit based on your personal income history once you reach full retirement age, or FRA. FRA kicks in at 66, 67, or somewhere in the middle of those two ages, depending on the year you were born.
You can claim Social Security at any point once you turn 62. There's no financial incentive to delay your filing beyond age 70, but if you choose to do so, the Social Security Administration isn't going to hunt you down and force you to start taking benefits.
Delaying your Social Security claim past FRA will result in a boosted monthly benefit for life, whereas filing before FRA will reduce that benefit for life. And since 62 is the earliest age to sign up for benefits, choosing that age will result in the largest reduction to your monthly benefit possible.
But will you get hurt financially by claiming Social Security at age 62? The answer depends on a number of factors.
Know what you stand to lose
If you're thinking of filing for Social Security at age 62, you must understand what that will mean financially. The extent that your monthly benefit will be reduced will depend on your FRA. But if that age is 67, and you claim Social Security at 62, you'll face a 30% reduction to your monthly benefit. So if you're entitled to a $2,000 monthly benefit at FRA, filing at age 62 will leave you with $1,400 a month instead.
At first, that might seem like a bad deal. But do remember that while claiming Social Security at age 62 might reduce your monthly benefit, it won't necessarily leave you with less lifetime income. That's because you don't know how long you'll end up living. But if your lifespan ends up being shorter than average, then an early Social Security filing could actually leave you with a larger lifetime benefit.
As an example, let's use the benefit numbers above and assume you live until age 80. With a Social Security filing at age 62, you'll end up with a lifetime payout of $302,400. With a filing at FRA, you'll end up with $312,000 — so $9,600 more.
But if you only live until age 76, filing at age 62 leaves you with $235,200 in lifetime Social Security income. Filing at age 67, or FRA, leaves you with $216,000, which is $19,200 less.
So all told, it's hard to say definitively that you'll lose out financially by claiming Social Security at age 62. But it's also important that you understand what sort of reduction in benefits you'll face.
You should also consider your other retirement income sources when making your filing decision. With a robust nest egg, you may feel comfortable claiming Social Security as early as possible because you have money elsewhere to compensate for a lower monthly benefit. But if you don't have much in the way of retirement savings, then a filing at or closer to FRA may be a better financial choice for you.
Ultimately, it's not an easy decision to make. But before you make it, be sure to understand the financial ramifications of claiming Social Security as early as possible.
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