There's a reason so many seniors routinely sign up for Social Security at age 62. That's the earliest point you can start getting benefits, and filing at 62 could mean getting to exit the workforce at a relatively young age.
But there's a major downside to claiming Social Security at age 62, and it's locking in a lower monthly benefit for life. And that could prove problematic if your retirement ends up lasting longer than you initially anticipate.
Longevity is a blessing and a curse
Americans are living longer these days. And while that's a good thing in theory, from a financial standpoint, it can be a challenge.
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Many people save for retirement with the expectation that their nest eggs will need to last 15 or 20 years. Well, what happens if you wind up living into your 90s instead of your 80s? At that point, you could end up depleting your savings and struggling to get by during the tail end of retirement, when you might need more financial resources to cover the cost of things like meal delivery and assistance with daily living if mobility issues arise.
That's why claiming Social Security at age 62 is a choice you might sorely regret. When you file at 62, you slash your monthly benefit by 25% to 30% compared to what it would otherwise be at full retirement age.
Meanwhile, Social Security is designed to keep paying you your monthly benefit for the rest of your life. So if you reach the age of 90 and your nest egg has run out, you'll still have a monthly benefit to look forward to. And it could work to your advantage to have that monthly benefit be larger, not smaller.
So when should you file for Social Security? Well, that depends. If you have a decent amount of money in savings, you may decide that your precise full retirement age is the right time to start getting your benefits. But if you're not all that confident in your savings, you may actually want to delay your filing beyond full retirement age. For each year you hold off on taking benefits, up until age 70, those payments get a permanent 8% boost.
Think carefully before filing early
A lot of people claim Social Security early because they feel they're entitled to their money after a lifetime of hard work. And that's quite understandable. Meanwhile, some people may be driven to file for Social Security at age 62 because they're worried the program will soon be out of money (that's not the case, but that's also a whole other topic).
No matter your reasons for claiming Social Security at age 62, before you do, think about the consequences of shrinking your monthly benefit on a permanent basis. You might think you've built a strong nest egg that's going to last as long as you need it to, but that may not end up happening. And a higher monthly payday from Social Security could serve as your personal safety net in that unwanted scenario.
