The age at which you claim Social Security benefits has a life-long impact on your financial security, so it's important to understand what you can receive in benefits if you claim early, and what you could be giving up.
How much money will I get at 62?
You can receive reduced Social Security benefits as early as age 62, but you'll only get 100% of your benefit if you wait until your full retirement age to claim. If you were born in or after 1960, your full retirement age is 67.
Although claiming early results in less Social Security income, age 62 is still the most common age at which people claim benefits. Nearly 50% of women and 42% of men take Social Security at age 62, according to the Center for Retirement Research at Boston College.
Clearly, claiming at age 62 is a popular choice, but the reasons why people claim benefits early varies. Sometimes retirees claim their benefits early because they've accumulated enough money in retirement accounts to retire, but they don't want to touch those accounts until required minimum distributions begin at age 70.5. More frequently, however, people claim benefits earlier than their full retirement age because of illness or injury or a job loss.
If you do claim benefits at age 62, then the amount of money you receive in Social Security benefits will depend on your highest 35-years of inflation-adjusted monthly income. If your work history is shorter than 35 years, then Social Security uses zeros for those years in its calculation.
Once Social Security calculates your average full retirement benefit based on your 35 year work history, it then reduces the amount it will pay you by applying multipliers at specific income thresholds. These are called bend points.
In 2017, these bend points occur at the $885 and $5,336 average income levels. Specifically, your full retirement age benefit is based on the sum of 90% of average income up to $885, 32% of average income up to $5,336, and 15% of average income above $5,336. Overall, Social Security is designed to replace approximately 40% of an average worker's pre-retirement income.
If you claim your benefits at 62 instead of waiting until full retirement age, then your Social Security income is reduced by 5/9 of 1% per month for the first 36 months and 5/12 of 1% for each additional month for which you claim early. For instance, a person with a full retirement age of 67 that claims at age 62 can expect to receive 70% of their age 67 benefit. Thus, if you're scheduled to receive $1,000 per month in benefits at age 67, then claiming at age 62 will result in you collecting $700 per month in benefits instead.
The same is true if you're claiming spousal benefits, but the reductions from claiming early are even larger. If you're entitled to spousal benefits, then claiming them at age 62 will result in a 35% lower monthly payment than you'd get if you waited until age 67. That's because the percentage reductions per month are slightly different for spousal benefits than for worker retirement benefits. So if you would have gotten $500 per month in spousal benefits at 67 but claimed at age 62, you'd get only $325 per month.
Social Security allows you to create an account and login to view your benefit at various ages based on your work record, but for perspective, the average person who was awarded Social Security benefits in December at age 62 was awarded $1,076.70 per month.
What I'll give up if I claim at 62
There are plenty of reasons why you might want to retire at age 62, however, waiting until age 67, or later, to claim can pay-off in a couple ways.
First, since the amount you receive in Social Security benefits is heavily dependent on your work history, retiring from a relatively high-paying job earlier than you need to could mean fewer high income earning years in Social Security's benefit calculation. If you've worked more than 35 years, then high income earning years replace low income earning years in the calculation. If your work record includes fewer than 35 years of work history, then each additional year of working will replace a zero in the calculation.
Secondly, claiming benefits at age 62 also means forgoing the opportunity to collect delayed retirement credits. Delayed retirement credits increase your full retirement age benefit by 8% for every year beyond age 67 you wait to claim, up until age 70. Therefore, if your age 67 benefit is $1,000, and you delay benefits until you're age 70, delayed retirement credits allow you to receive $1,240 per month instead, or $2,880 more in Social Security income annually. If you live into your mid-80s, you can collect more in lifetime benefits because of delayed retirement credits than you would collect over your lifetime if you claim early.
Overall, a person with a $1,000 age 67 benefit claiming at age 62 would receive $540 per month less in Social Security income than they'd otherwise receive at age 70.
It's also important to remember that if your spouse relies on your work record for Social Security income, then claiming early can also permanently reduce how much money they can collect in survivor's benefits after your gone. Your surviving spouse can only collect up to 100% of the amount you were receiving prior to your death, so if you anticipate that your spouse could struggle financially after your gone, then claiming at age 62 might not be your family's best option.
Because the decision on when to claim Social Security benefits can lock you into a lifetime of smaller checks, it's critical to consider all of the strategies and options available to you. Only then can you be sure you've made the right decision for you and your spouse.