When you get near the time you'll retire, you have a choice to make about your Social Security benefits. You'll need to make the decision about when to file for them and start getting monthly checks.
You have the option to start receiving your benefits when you've reached 62 years old. But this is considered "claiming early," because you'll be filing for checks well before you've reached your full retirement age (FRA). That's between ages 66 and four months and 67, when you receive your standard benefit as calculated based on average wages over your career.
Early filing can make sense in some situations -- but unfortunately many people file for benefits too soon for the wrong reasons and end up regretting their choice. Here are three of the worst reasons for starting Social Security benefits early so you can make sure none of these apply to you before you choose an early claim.
1. You're worried the benefits program will run dry
One big reason some people claim benefits early is because they're afraid Social Security won't be there for them in the future. Frightening headlines about how the Social Security trust fund is scheduled to run short and necessitate an automatic benefit cut in 2034 promote this type of decision.
In realty, it's almost impossible to imagine that future retirees won't get the promised benefits. First, even if the trust fund does run dry, retirees would still get 78% of the money they're entitled to because enough revenue will be produced from current workers to pay out this amount. Second, lawmakers have been very reluctant to propose anything that even sounds like cutting Social Security, so they're all but certain to take action to prevent any benefit cuts at all.
If you anticipate a reduction in benefits in the future and make an early claim based on that fear, you'll be guaranteeing that you suffer the exact type of reduction in monthly Social Security income that you were worried about -- and that you'd have been very unlikely to face if you waited.
2. You don't understand how early filing penalties and delayed retirement credits work
A misunderstanding of how benefits work is another big reason why people claim Social Security early and end up regretting it.
The Social Security benefits formula is undoubtedly confusing, but there are a few simple things to understand about how it works to make an informed choice:
- You get your standard benefit (primary insurance amount) if you start checks at full retirement age: Your standard benefit gives you a percentage of inflation-adjusted average wages over the 35 years you earned the most.
- Your standard benefit is reduced if you claim benefits ahead of FRA: You lose 5/9th of 1% of your standard benefit per month for each of the first 36 months you get checks before FRA and 5/12th of 1% for each prior month you claim before then. A claim that happens at 62 with a full retirement age of 67 would result in a whopping 30% reduction in benefits.
- Your standard benefit is increased if you claim after FRA. You gain 2/3rd of 1% of your standard benefit per month for each month you delay after reaching full retirement age. Delayed retirement credits can be earned until age 70, so there's no benefit in waiting longer than that to start your checks.
If you don't really understand how this works, you may not know just how much an early claim could cost you and might inadvertently end up shrinking your benefits because you're eager to get your hands on them and can't properly weigh the downsides.
3. You think benefits will be recalculated later
Another common mistake people make is claiming benefits early with the assumption they'll be recalculated to the standard benefit at full retirement age. If you start your checks sooner rather than later because you don't think it will do any lasting harm, you're likely to regret your choice, since this simply isn't true.
The benefits reduction that comes from an early claim is permanent and affects all future cost of living adjustments (COLAs, or Social Security raises). Your monthly income will never catch back up to where it would've been had you not claimed early.
The good news is, if you understand more about how the benefits program works, you can make sure that if you do claim early, you're doing so for the right reasons. Or you may just decide to put off filing for your benefits so you can max out your monthly income and have more Social Security money to live on in your later years.