Key Points
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Claiming Social Security before full retirement age reduces benefits on a monthly basis.
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That could translate to smaller inflation adjustments over time.
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It could also mean less financial stability overall.
For some people, claiming Social Security early can feel like the obvious move. After decades of working and paying into the system, taking benefits early could be your ticket to retiring and enjoying the freedom of not having a job.
You may be aware (or at least you should be) that claiming Social Security before reaching full retirement age results in reduced monthly benefits. If you file at 62, your checks will shrink by about 30% compared to waiting until full retirement age (assuming it’s 67). By contrast, if you claim Social Security at 65, in that scenario, you’re looking at about a 20% reduction in benefits each month.
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While filing for Social Security early can make sense in some situations, it’s a move that many retirees end up regretting. And the reason goes beyond smaller checks to begin with.
Smaller benefits mean weaker COLA increases
You may be able to get on board with collecting smaller Social Security checks each month. But you should also remember that benefits are eligible for a cost-of-living adjustment (COLA) each year that’s tied to inflation. The smaller your benefits are, the less each COLA is apt to be worth.
That’s a potential problem, though, because Medicare Part B increases can substantially eat away at COLAs. If you shrink your Social Security benefits by filing early, your COLAs may not amount to much anytime there’s a modest increase coupled with a significant Part B hike.
Reduced benefits could compromise your long-term financial security
Another thing to realize is that unless you have a guaranteed pension or annuity, Social Security may be your only retirement income stream that’s guaranteed for life. Even if you save well for retirement, there’s no guarantee your money won’t run out.
If you shrink your Social Security checks by claiming benefits early, you’ll have that much less protection in case you end up living longer than planned and your savings start to feel the strain. Also, if you start off with smaller Social Security benefits, you might need to tap your savings more aggressively from the start, thereby potentially increasing the risk of running out.
It’s not a given that claiming Social Security early will end up being a poor choice on your part. But it’s important to remember that an early filing won’t just mean smaller checks. It could also result in less meaningful COLAs year after year and less longevity protection. Take those points into account before you make your filing decision so you don’t regret it later.
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