When your 62nd birthday approaches, starting Social Security right away may be tempting. Even if you're in good health, none of us is guaranteed tomorrow. After paying into the system for your entire career, it's understandable if you're ready to start cashing in.
But no matter how badly you want those checks to start rolling in, starting Social Security at 62 is often a big mistake. Here are three reasons to wait.
Your life expectancy is probably longer than you think
A lot of people worry that they'll leave money on the table if they wait too long to collect Social Security. But outliving your savings should be a much bigger concern. As of 2019, the average 65-year-old man could expect to live an additional 18.2 years, according to the U.S. Centers for Disease Control. A 65-year-old woman has a life expectancy of 20.8 years.
When you take Social Security at 62, your benefit will be about 30% lower than it would be if you waited until 67, which is your full retirement age if you were born in 1960 or later. Waiting until you're 70 yields a benefit that's about 77% higher compared to claiming at age 62. That's because you earn 8% delayed retirement credits for every year you wait past your full retirement age until your benefit maxes out at 70.
Stretching your money over several decades can be difficult, particularly when you take a reduced Social Security benefit. If you have any doubt about whether your retirement funds will be adequate to support you for 20 to 30 years or more, holding out past your 62nd birthday for Social Security is a wise choice.
Social Security COLAs are typically stingy
Social Security recipients are getting a 5.9% cost of living adjustment in 2022, which sounds pretty generous. It's the biggest adjustment recipients have received since 1983. But COLAs aren't guaranteed. In eight of the last 10 years, they've been 2% or less.
Social Security COLAs are determined by price increases, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But that's problematic for retirees because as the name implies, it only measures cost increases experienced by households in urban areas with at least one working member. Senior households spend a far greater share of their incomes on healthcare costs, which tend to increase much faster than overall inflation. The Senior Citizens League estimates that the average Social Security benefit in 2021 would buy about 30% less than it would have in 2000.
If you're worried about soaring inflation, think twice before starting Social Security at 62. For each year you delay between ages 62 and 64, you'll increase those monthly checks by 6.66% for life.
You could reduce your spouse's benefits
When you're married, it's essential to consider how claiming Social Security early could affect your spouse, particularly if you're the higher earner. If you die before your spouse, they may be able to get bigger monthly checks by switching to survivor benefits. They can receive between 71.5% and 100% of your benefit amount, depending on their age when they claim.
If you die before you take Social Security, their benefit will be based on your primary insurance amount. (That's the amount you would have received at full retirement age.) But if you die after claiming, their benefit is based on the amount you were receiving when you died. In that case, claiming at 62 would lower their benefit, as well.
When should you take Social Security at 62?
A lot of guesswork goes into deciding when to take Social Security. There's no magic age that makes sense for everyone. While most people will benefit from waiting past age 62, there are some circumstances when starting as early as possible makes sense. Here are a few scenarios when you might want to take Social Security at 62:
- You have a serious health issue. If you have a medical condition that significantly reduces your life expectancy, taking benefits at 62 could help you maximize the benefits you get from Social Security over your lifetime.
- You really need the money. If delaying Social Security would push you into debt, or it would jeopardize your ability to pay for medical care or housing, starting early makes sense.
- You really don't need the money. Ironically, starting Social Security early also makes sense when you really don't need the money. If you have multiple streams of retirement income and aren't worried about outliving your savings, go ahead and collect at 62 if you'd like.
Regardless of what age you plan to start Social Security, it's vital to save for retirement as early as possible. Focus on building your nest egg by investing in a retirement account, like a 401(k) or an individual retirement account (IRA), so that you're less dependent on those Social Security checks.