Should you file for Social Security at 62? Maybe. But if you're to file at the earliest possible age and slash your benefits for life, you'd better have a darn good reason for doing so.
The average senior on Social Security gets a little over $1,500 a month in benefits. If that's what you're entitled to during retirement at a full retirement age of 67, but you file at 62 instead, you'll lose out on about $450 a month in income -- permanently. And that's a hard financial hit to absorb.
So what constitutes a good reason for claiming your benefits early? Well, for one thing, if you're forced out of a job and don't have enough in savings to pay your bills, then filing for benefits makes a lot more sense than holding off and racking up costly debt in the process. Similarly, if you can't work due to health reasons (yours or a loved one's), then claiming benefits early to get by is a reasonable thing to do.
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You might also take your benefits early because you technically don't need the money to live on, but rather, you want the money to travel or enjoy the earlier part of your senior years. But if there's one reason you shouldn't claim benefits as early as possible, it's that you're worried about Social Security running out of money. Not only is that not happening, but claiming benefits at 62 when the program is facing financial difficulties could leave you unbearably cash-strapped through retirement.
Is Social Security really in trouble?
The short answer is yes.
The program will soon start owing more money in benefits than it collects in revenue, largely due to the fact that so many baby boomers will be existing the labor force and drawing their benefits, and not enough workers will be entering the labor force to take their place. Social Security does have trust funds it can tap to make up for its near-term financial shortfall, but once those funds run out of money, benefit cuts may be inevitable.
Earlier in the year, the Social Security Trustees projected that those trust funds could be depleted by 2035. But the events of the COVID-19 crisis -- namely, record-high unemployment -- could cause that unwanted milestone to come sooner. Social Security's main revenue source is payroll taxes, but with so many people out of a job this year, the program has lost out on income it was undoubtedly counting on.
But whether benefit cuts become a possibility in 2035 or sometime sooner, Social Security is not at risk of going broke completely. And if you file for benefits at 62 because you're worried about that happening, you could end up doing yourself a major disservice.
If Social Security is reduced across the board within the next 15 years, recipients may be in line for benefits that are 24% lower than what they normally would've been. Meanwhile, if you claim Social Security at 62 instead of your full retirement age (which we'll assume is 67), you'll reduce your monthly benefit by 30%. Or, to put it another way, you'll face a reduction on top of a reduction, and it doesn't take a math genius to recognize that that's a very dangerous thing -- especially if you don't have much in the way of retirement savings and expect to be pretty reliant on Social Security to cover your senior living expenses.
Don't make a mistake you'll regret
Though there are plenty of good reasons to sign up for Social Security at age 62, you shouldn't do so because you're convinced the program is going bankrupt and won't be around much longer. If you opt to file for benefits at the earliest possible age, you may wind up extremely cash-strapped as a senior. It's bad enough that future Social Security recipients are looking at benefit cuts across the board, so don't make your personal reduction in benefits even more substantial.
