Filing for benefits as early as possible isn’t always a poor choice. But in one scenario, it’s a recipe for disaster.
Hopefully, Social Security will be one of several income sources available to you in retirement. You may, for example, have some pension income coming your way, or withdrawals from an IRA or 401(k) you worked hard to save in. You may also be interested in working part-time as a retiree to not only earn money, but stay busy and alleviate boredom.
But regardless of whether Social Security constitutes 30%, 50%, or 80% of your retirement income, it’s important to sign up for benefits at the right time. That’s because your filing age will determine how much monthly income the program pays you for the rest of your life.
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The earliest age to claim Social Security is 62. But you’re not eligible for your full monthly benefit until full retirement age, which is years later.
If you were born in 1960 or later, full retirement age is 67. And in that case, a claim at 62 will leave you with a monthly benefit that’s 30% lower than what you would’ve gotten paid five years later.
There are also financial incentives for delaying your Social Security claim past full retirement age. These run out at age 70.
You may be eager to sign up for Social Security at 62 to get your benefits as quickly as possible. And in some cases, that move makes sense. But in one specific situation, filing for Social Security at 62 could sorely backfire on you.
When you lose out on a world of lifetime income
You may decide to claim Social Security at age 62 and use the money to travel, start a business, or achieve another retirement goal you’ve mapped out. And it’s not automatically a poor choice, despite the obvious reduction in your monthly benefit.
But there’s one scenario where a super-early filing doesn’t make sense, and it’s when you have a combination of great health and a family history of longevity. In that situation, you’re likely to lose out on a lot of lifetime income by filing for benefits as early as possible.
Say you’re entitled to $2,000 a month from Social Security at age 67. Claiming benefits at 62 means getting $1,400 a month instead.
If you live until age 78 1/2, things will mostly even out — meaning, you’ll collect roughly the same lifetime benefit regardless of whether you file for Social Security at 62 versus 67. But if you end up living until age 88, then a Social Security claim at 62 will cost you a total of $67,200 in lifetime income. If you live until 92, you’re losing $96,000 in total. That’s a lot of money to give up.
Look at the big picture
You might easily justify losing a few hundred dollars a month in your Social Security checks if filing at age 62 means getting to use that money sooner. But you may be surprised at how much lifetime income you miss out on by taking benefits that soon.
So before you claim Social Security at 62, ask yourself if there’s a compromise. If you can hold off even a few years, it could put that much more lifetime income in your pocket.
