You can claim Social Security as soon as you turn 62, and chances are good that you're eager to do so -- especially if getting those retirement benefits would enable you to leave your job.
Before you rush into filing for benefits, though, you should be aware of the potential downsides. Here's exactly what happens if you start claiming Social Security at 62 so you can decide if it's right for you.
Image source: Getty Images.
1. You'll permanently shrink your monthly benefit
The first big thing that happens when you claim Social Security at 62 is that you shrink your monthly benefit.
At full retirement age (FRA), you are entitled to receive a standard benefit. That standard benefit is an amount based on average wages over the 35 years you earned the most (adjusted for inflation). You will not receive exactly the standard benefit unless you claim at exactly full retirement age, though.
While your FRA varies based on your birth year, it's well after 62 for everyone -- it's 67 for anyone born in 1960 or later. So, if you start checks at 62, you're going to be hit with early-filing penalties.
These penalties result in a monthly reduction in income equal to 5/9 of 1% per month if you're claiming 36 months early or less. If you file for benefits at 62, you'll be more than 36 months ahead of your FRA, though, so for each additional month, you're hit with a penalty of 5/12 of 1%.
The ultimate result: If you claim benefits at 62 with an FRA of 67, you will shrink your standard benefit by 30%. If you were on track for $1,800 per month, you'd end up with only $1,260. The benefit reduction is permanent. You aren't ever bumped back up to where you'd have been if you waited to claim. And all future Social Security raises are based on your lower starting benefit.
2. You'll reduce survivor benefits for your spouse
If you're married and were the higher earner, there's another consequence of claiming Social Security at 62: You will potentially reduce your spouse's future income.
See, if you pass away, your spouse will get to keep the higher of the two benefits either of you were earning as survivor benefits.
Your benefits should be higher if you made more throughout your career. However, if you start getting payments at 62 and shrink your checks, your spouse will be left only with this reduced survivor benefit when you are gone.
3. Odds are your lifetime benefits will be lower
Finally, if you claim Social Security at 62, you reduce the odds of maximizing the amount of Social Security you get over your lifetime. Research has shown around 57% of retirees would end up with more total money coming from Social Security if they waited until 70. By contrast, ages 62 or 63 are the optimal choices for only 6.5% of retirees.
Waiting is the best choice for most people because life expectancies have gotten longer since Social Security was established. The program included early-filing penalties and delayed retirement credits to try to equalize lifetime income no matter when you start your checks. But the calculations were based on life expectancies at the time it was created. Since many people live longer now, the odds are in their favor that they'll earn more if they wait.
Now, with a reduced monthly benefit, lower survivor benefits, and a decreased chance of maxing out your lifetime benefits, it may seem clear that you should not start Social Security at 62. And waiting is, indeed, often the right choice.
However, you should consider your own unique situation and goals. If you need Social Security to avoid draining your savings, for example, then you'd likely want to claim, because running out of savings would be worse than the consequences of an early claim. Ultimately, though, delaying is probably best for most people when possible. But you need to do what's right for you given the whole picture.
