The Social Security Administration gives seniors a choice on when to take benefits. They can wait until full retirement age (either 66, 67, or somewhere in between) and enjoy their benefits in full. Or they can file sooner and collect a reduced monthly benefit.
Age 62 is the earliest age to sign up for Social Security. As such, it's a common age to file at.
But if you claim Social Security at age 62, you'll shrink your monthly benefit by 25% to 30%, depending on your specific full retirement age. And that's a hit you may be hesitant to take.
After all, the great thing about Social Security is that it pays you a monthly benefit for the rest of your life. So the smaller that benefit is, the less financial flexibility you get.
But despite the fact that claiming Social Security at 62 will mean permanently reducing your monthly benefit, it's a move that could still pay off. In fact, it could end up being the most financially advantageous age to file.
It's all about lifetime income
When many people think about when to claim Social Security, they focus on monthly income. And that's understandable. But it's just as important to think about lifetime income when making your decision. And in the context of lifetime income, a Social Security claim at age 62 could be your best option.
While filing for Social Security at age 62 will generally mean accepting a lower monthly benefit for life, it also means getting to collect benefits for many more years than you would by waiting until full retirement age. And if you don't end up living a very long life, you could come out ahead financially by getting your money as early as possible.
So, say you're entitled to a $2,000 monthly Social Security benefit based on your personal earnings history at a full retirement age of 67. If you sign up for benefits at age 62, you'll get $1,400 a month instead. But you'll also get 60 more payments due to starting early.
Now, let's say you fall ill during retirement and only live until age 75. At that point, filing for Social Security at 62 will leave you with $218,400 in lifetime income. Filing at 67 will leave you with just $192,000. So in this situation, you're looking at an extra $26,400 in your lifetime by claiming benefits as soon as you're able to get them.
Of course, you can't predict how long you'll live in retirement, and in this example, the numbers look much different if you're still alive in your 80s. In fact, the longer you live, the less filing for Social Security early pays off financially in the long run.
But you don't know how long you'll live. And if you don't want to take chances, you may decide that you'll make your peace with a lower monthly benefit, as that could ultimately lead to more income from Social Security in your lifetime.
A tough choice to make
Obviously, accepting a lower monthly Social Security benefit isn't an easy thing to come to terms with. And if your health is great going into retirement and you have a family history of longevity, then it could pay to delay your filing until full retirement age or even beyond (you can grow your benefits by 8% a year by postponing your past full retirement age, up until age 70). But if you'd rather not take chances, then you may find that claiming your benefits as soon as you can is the best way to go.