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Social Security: 2 Great Reasons to File for Benefits at 62

By Matthew Frankel, CFP® – Oct 10, 2016 at 7:04AM

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Despite the allure of larger monthly checks if you delay, claiming the retirement benefit as soon as you're old enough to qualify makes some sense for a lot of Americans.

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If you're eligible based on your work record, you can file for Social Security benefits anytime between the ages of 62 and 70. Although that's a pretty wide time frame, the majority of retirees choose to file on the earlier end of it -- in fact, 62 is the most common age to file for benefits. Here are a couple of reasons you might want to do the same.

You retired earlier than you planned and need the income

Even if you plan on working until 65 or older, that's not always how it works out. According to an Employee Benefit Research Institute survey, 33% of workers expect to retire after age 65, but just 16% actually do. Conversely, only 9% of workers say they plan to retire before 60, but a surprising 35% end up retiring that early. In fact, almost half of retirees surveyed said they stopped working earlier than planned.

The most common actual retirement age in the survey? You guessed it: 62.

There are a variety of reasons for this. The majority (61%) of unexpectedly early retirees cited health problems or disability, but other common reasons included having to care for a family member, corporate downsizing, or a change in the skills required for their job.

If you stop working early, chances are you won't have enough saved in your 401(k) and other retirement accounts to provide a sufficient sustainable  income stream to last you the rest of your life. According to Vanguard's 2015 "How America Saves" report, the average 401(k) account balance for the 55-64 age group is $177,805. This may sound like a lot, but if you withdraw 4% per year from a nest egg of that size -- the rate many retirement experts suggest -- this translates to just $7,100 in annual income.

Even worse, the median 401(k) balance in that age group is just $71,579. I'll spare you the mathematics, but the median being significantly lower than the average reflects a situation in which a small percentage of the population being measured has saved a lot for retirement, while the majority of them have savings well below the average. If you're one of the lucky few with a seven-figure 401(k) balance, you'd probably be financially OK if you wait to claim Social Security.

But since Social Security is an inflation-protected source of income that's guaranteed for life, for the majority of Americans, it makes sense to start collecting your benefits if you're eligible and are no longer working.

Because it's all the same anyway

It's a well-known fact that the longer you wait to claim Social Security, the higher your monthly checks will be. In fact, your monthly Social Security retirement benefit can be permanently increased by 76% if you wait until age 70 instead of claiming at 62. Many people think this means you'll get more money out of the program if you wait.

However, it's important to realize that the reason Social Security pays more if you delay claiming, and less if you claim early, is so theoretically you'll receive the same amount of lifetime benefits, adjusted for inflation, regardless of when you choose to start. Sure, you'll get more money each month by waiting until 70, but you'll also collect benefits for eight fewer years.

The point is that if you could really use the money early, don't delay Social Security just because you think you'll get more money over the long run.

One bad reason to file for benefits at 62

So far, we've discussed two good reasons you might want to claim Social Security benefits as early as possible. However, one reason some people give for filing at 62 makes my blood boil. It has many variations, but the can be summed up as: "Social Security is going broke, so I may as well get some money from it while I can."

Nothing could be further from the truth. In fact, Social Security had nearly $3 trillion in reserves at the end of 2015. Not only that, but Social Security operated at a $23 billion surplus in 2015, and is expected to continue to bring in more than it pays through 2019.

It is true that Social Security is projected to run a deficit starting in 2020, and its Trust Fund is forecast to be depleted in 2034, but there are two important things to know. First, this gives Congress 18 years to lift the payroll tax cap, raise payroll taxes in some other way, cut benefits, or otherwise find a solution, and history tells us they are likely to do just that. Second, even if the Trust Fund runs dry, the continuing flow of incoming payroll taxes will still be enough to cover roughly three-fourths of promised Social Security benefits. So, as a worst-case scenario, retirees' checks will be cut by 25% in about 18 years.

In a nutshell, while there are some good reasons to take benefits early, fear of Social Security "going broke" isn't one of them.

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