If you'll be 62 soon, you're probably excited about becoming eligible for Social Security checks. The earliest age you can claim them is 62, and that's a popular age to begin getting payments because many people need their benefits to retire and want to leave their jobs ASAP.
Unfortunately, if you're anticipating starting Social Security at the earliest possible age of eligibility, you'll want to carefully consider the downsides. That's because the reality is that starting benefits at 62 is probably not the right choice for most people for a few key reasons.
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1. You'll shrink benefits that may already be too small
The decision to start Social Security checks at 62 will have profound long-term financial consequences because it reduces your monthly payment by as much as 30%. Benefits are already designed to replace only around 40% of pre-retirement income. That's about half of the amount you'll need -- or less, since experts suggest ensuring earnings in your later years replace at least 80% to 90% of your salary. Shrinking Social Security checks means they'll do even less.
So, why are Social Security benefits reduced with a claim at 62?
It's because early filing penalties apply for every month you get a payment before full retirement age. Full retirement age is between 66 and four months and 67 (based on when you were born). If you start checks at 62, you'd be claiming benefits as much as five years before FRA. The early filing penalties that hit you as a result reduce checks by 5/9 of 1% during the first 36 months, and by 5/12 of 1% per month if you've claimed more than 36 months ahead of FRA. A claim at 62 thus reduces benefits by 30%, since you lose 5% per year for getting checks at 62 and 63, and another 6.7% per year for receiving payments at 64, 65, and 66.
If benefits are already way too low to live on and you reduce them by another 30%, this is likely to leave you struggling unless you have ample savings to supplement your retirement income.
2. You could cause financial trouble for your spouse
Most married couples have two Social Security checks coming into the household. When one partner dies, however, that person's benefits stop.
The good news is, survivor benefits help reduce the financial hardship that can come from such a big cut to household income. Survivor benefits allow the person who lives longer to receive the higher of the two benefits either partner was receiving. If you were bringing in $1,800 in monthly Social Security checks and your partner was getting $1,500, survivor benefits would allow your partner to keep getting $1,800 payments.
If you were the higher earner, you should have the bigger benefit. The problem is, if you start your checks at 62 and shrink it, both your benefit and the survivor benefits you leave behind would end much smaller -- thus leaving your widow(er) with less to live on.
3. You could cheat yourself out of lifetime income
Finally, the last big concern is that you might end up with less lifetime benefits if you start checks at 62.
Studies have shown around six in 10 retirees get more money during their later years if they delay claiming benefits until 70 rather than claiming earlier.
The reality is, Social Security's system of early filing penalties and delayed retirement credits was designed decades ago to try to equalize lifetime benefits. The early filing penalties, along with delayed retirement credits, were put in place so early filers would get smaller monthly payments for more years, and late filers would get larger monthly payments, but not as many.
Those who outlive their life expectancy, though, end up beating the system if they delay their benefits claim since they get their higher monthly checks for longer than anticipated and thus end up with more lifetime benefits. And since life expectancies have gotten longer since the system was designed, more people end up living longer than anticipated and thus getting more Social Security money over time.
Of course, if you claim Social Security early, you'll give up this opportunity, and thus the odds are you'll end up with less than you could've had. For this reason, along with the potential consequences for your spouse and the financial challenges a reduced monthly benefit can cause, you should seriously reconsider any plans you may have to start your Social Security checks at 62.
