When you turn 62, you become eligible for Social Security retirement benefits for the first time. This is a major life milestone you're likely excited about if you're eager to leave work but need income from Social Security to make that possible.
But once you're legally allowed to claim benefits, you don't want to just rush into starting your checks. You owe it to yourself to know a few key details to make informed choices. In fact, it's best to learn these four key rules before becoming eligible so you don't request payments to start ASAP and then end up regretting it later.
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1. You'll be hit with early filing penalties if you claim benefits before full retirement age
If you're turning 62 soon, you'll want to find out how early filing penalties work before claiming benefits. While you'll be eligible to start getting payments right away, you may want to wait as long as eight additional years. The simple reason for this is the earlier you start getting benefits, the smaller each check will likely be.
Social Security benefits shrink when claimed at a younger age, because the program is designed with a system of early filing penalties and delayed retirement credits. Unless you start payments at exactly full retirement age (FRA), which is between 66 and four months and 67, the program either reduces or shrinks the standard benefit awarded based on earnings over your career.
Early filing penalties applicable before FRA reduce monthly payments by five-ninths of 1% each month in the first three years. That adds up to a 6.7% annual reduction. So if you claimed at 66 with an FRA of 67, you'd lose 6.7% of your standard benefits, while you'd lose 13.4% with a claim at 65 and 20% of it with a claim at 64.
If you begin your benefits more than three years early, you lose an additional five-twelfths of 1% per month, which adds up to 5% annually. Starting payments at 63 with an FRA of 67 thus leads to a 25% cut, and the maximum penalties for a claim at 62 result in a 30% reduction. By contrast, each month you delay after FRA results in a two-thirds of 1% benefit increase, which adds up to 8% annually.
Make sure you know how these penalties and credits work before reaching 62. You don't want to file for benefits ASAP only to find you end up with as much as 30% less than expected.
2. You could shrink your checks if you haven't worked for 35 years
As mentioned, earnings over your career determine your standard benefit. Social Security considers inflation-adjusted wages during the 35 years your salary was highest to determine average wages. Benefits equal a percentage of that average, so the lower it is, the smaller your Social Security check.
Since your average is always calculated using a 35-year work history, it could include some years of $0 wages if you don't work that long. The more years of no wages, the smaller the average wage used to set benefits will be.
To avoid a reduced benefit, at a minimum you'll want to ensure you get a full 35 years in. And if you earned a low salary in any years included in that 35 -- say, because you were just starting out or were unemployed for part of the time -- it could pay to work longer. Each extra year of work at a higher salary eliminates one of those low-earning years in your average.
3. Survivor benefits could be reduced if you start checks early
If the impact on your own benefit doesn't convince you that putting off a Social Security claim is a good idea, it's also worth thinking about how your choice could affect your spouse.
Social Security survivor benefits allow the last surviving spouse to receive the higher of the two checks either person was receiving. If you were the higher earner, your benefit should be bigger than your spouse's. But if you've shrunk your check by claiming it early, you'll leave a much smaller survivor benefit behind than would've otherwise been available.
This can sometimes result in serious financial hardship, and it's worth thinking about how your partner will fare if you pass away first.
4. Working while getting benefits could reduce them if you haven't hit FRA
Finally, if you're hoping to keep doing some work after retiring, you'll want to know the rules for working while getting benefits before full retirement age.
If you won't reach full retirement age at any time during the year you're simultaneously working and collecting Social Security checks, you'll lose $1 in benefits per $2 earned above $19,560. If you'd hit FRA some time during the year, you'll lose $1 in benefits per $3 earned above $51,960. Entire checks are withheld to account for the forfeited benefits.
Eventually, your benefit is recalculated at FRA to account for missed income. You're credited back early filing penalties for any month you didn't get a payment. But in the interim, it won't be possible to simultaneously get both a high paycheck and a Social Security benefit.
Before turning 62, make sure you understand all of these rules so you don't rush into claiming Social Security when doing so would be a mistake. Your diligence will pay off when you make the choice around benefits that's right for you.
