There's a reason seniors are advised to choose their Social Security filing age carefully. The age at which you sign up will impact what your monthly benefit looks like -- for life.
What the government defines as the "full" monthly Social Security benefit you're entitled to will be based on your income history. But specifically, it's the benefit you'd receive if you began taking it at your full retirement age. For every American who still has retirement ahead of them, that age is either 66, 67, or 66 and a certain number of months, depending on the year they were born.
Meanwhile, the earliest age to claim Social Security is 62. And it's easy to see why filing then is tempting -- you start getting your money much sooner.
But there's a downside to filing at 62 -- it reduces your monthly benefits substantially on a permanent basis. If your full retirement age is 67 -- which it is for everyone born in 1960 or later, and thus everyone whose 62nd birthday is still in the future -- signing up for Social Security at 62 will slash your check size by 30%. That missing monthly income could easily leave you cash-strapped in retirement.
But while the prospect of a lower monthly benefit may be a deterrent for some people, perhaps it shouldn't be a deterrent for you. In fact, it might not hurt you financially at all.
When your benefits are really just gravy
Many seniors enter retirement with minimal savings and are therefore heavily reliant on their Social Security income to cover their core expenses. But if you've saved and invested effectively throughout your career and are sitting on a large nest egg, you may be in a position to manage your regular bills with or without Social Security.
A lot of people who have built substantial nest eggs look at their Social Security checks as gravy -- bonus income they can spend as they please. And if you're in that boat, there's no reason not to file for benefits at 62 if doing so makes it easier for you to retire early and enjoy more experiences while you're younger and healthier.
Say, for example, that you are just about to celebrate your 62nd birthday and you're gearing up to retire after having accumulated a portfolio worth $3 million. You may decide to use withdrawals and distributions from your portfolio for essential expenses, and dedicate your Social Security benefits to covering the costs of leisure and travel. That's a perfectly reasonable thing for someone in your financial position to do.
One of the perks of building a healthy nest egg is that it takes the pressure off you on the Social Security front. Under those circumstances, you should be able to claim benefits when you want to without having to stress about the consequences.
Give yourself a break
If you're coming into retirement with a mere $100,000 in savings, then signing up for Social Security at a later age is probably your best bet. But if you have 20 to 30 times that amount set aside, then you probably don't have to worry so much about getting smaller monthly payments.
It's also worth remembering that the calculations that shrink your payments for claiming early (and increase them for delaying past your full retirement age) were designed with a simple goal in mind. If a person lives to an average age, they should collect about the same amount in total from the program over the course of their retirement, regardless of when they start taking benefits.
So if you've prepared well, you might as well sign up for Social Security at a time when those benefits could make it possible to achieve more of your lifelong goals or simply enjoy yourself after many years of hard work and aggressive saving.