The most popular age in America to claim Social Security benefits is age 62, according to the Center for Retirement Research. In fact, in 2013, 48% of all women and 42% of all men who claimed Social Security retirement benefits were just 62 years old. Since 62 is the youngest age at which these benefits can be claimed, it's clear that more than 4 in 10 Americans can't wait to get their hands on Social Security checks.
Unfortunately, for millions of retirees, benefits will be significantly lower if they claim them at 62 than if they wait until full retirement age (FRA). When you retire before FRA -- which is age 67 for Americans born after 1960 -- benefits are reduced by 5/9 of 1% for each month prior to FRA, up to 36 months. If you retire more than 36 months before FRA, benefits are further reduced by 5/12 of 1%, monthly. For a person retiring at 62 whose full retirement age is 67, retiring 60 months early would mean a 30% reduction in benefits.
There are circumstances where it makes sense to retire and claim Social Security benefits at 62, despite the big reduction. If you're going to receive a public pension that would cause Social Security benefits to be reduced, or if you have a non-working spouse who needs to claim benefits on your record, it may be wise to file early.
For most people, however, claiming Social Security at 62 isn't the result of a calculated plan to maximize money from Social Security. Instead, it generally boils down to two reasons.
1. A fundamental misunderstanding
One big reason why many retirees claim Social Security at 62 is they simply don't understand the rules for how Social Security works. When responding to a 2017 Fidelity survey, 38% of pre-retirees thought if they claimed Social Security benefits at 62 and took a reduced benefit, their benefits would automatically increase at full retirement age.
If you assume you can claim five years of benefits and then get your monthly payments bumped up on your birthday, it seems like a no-brainer to claim benefits ASAP. Unfortunately, seniors who make this mistake are in for a rude awakening when benefits don't increase.
This miscalculation has profound consequences. If you were on track at age 67 to receive a benefit of $1,404 -- the average benefit for retirees in 2018, your benefit would drop 30%, to $982.80 if you claimed at 62. You'd receive these benefits for five years before reaching age 67, so you'd have pocketed a total of $58,968. But for the rest of your life, your benefits would be $5,054.40 less per year than if you'd waited.
Doing the math, it would take you almost 12 years to make up for the years of benefits you missed out on by waiting. But each year after that, you'll miss out on at least $5,054 in extra income -- not even considering the cost-of-living adjustments made based on current benefits. This is money you may need when you're older, sicker, and have higher healthcare expenditures. Avoiding mistakes like this is why it's so important to make sure you fully understand your benefits before claiming Social Security.
If you've claimed too early and are within your first 12 months of receiving benefits, you can withdraw your claim and be treated as if you hadn't filed at all. However, you'll have to repay all benefits received. You could also suspend your payments. If you're under FRA and earn above a certain threshold while receiving Social Security, benefits are withheld, and you'll later receive credit for the months you went without getting payments.
Unfortunately, many people find it difficult to get back into the workforce after retiring, and many can't repay benefits they've been using to live on. In other words, once you've claimed early, you may be stuck.
2. A lack of alternatives
While some people choose to retire at 62 even though they could continue working, for many others, retirement comes involuntarily. A recent study from the Center for Retirement Research found job opportunities significantly narrowed for job seekers after age 50, and became even worse after age 60.
Among job seekers 50 and over, around 5% are hired in occupations considered to be "old-person" jobs, defined as hiring older workers at more than twice the rate of prime-age hires. By age 60, more than 20% of job seekers are hired for "old-age" occupations.
Unfortunately, jobless rates for older workers have remained persistently high, even as overall jobless rates have fallen. An analysis conducted by the Schwartz Center for Economic Policy Analysis (SCEPA) at the New School found a real jobless rate of around 12% for workers 55 and older when factoring in seniors who were looking for work, who were underemployed, or who had dropped out of the labor force. This was almost 2.5 times the national jobless rate.
Individuals with lower-socioeconomic status -- especially men without college diplomas -- have even fewer career opportunities late in life, the Center for Retirement Research finds. This demographic group is typically least prepared for retirement and could benefit most from working longer.
When older Americans are forced to stop working, most are forced to take Social Security benefits because they haven't saved enough on their own for retirement. For families ages 56 to 61 with median retirement savings balances of $17,000, leaving the workforce involuntarily almost assuredly means that claiming Social Security benefits is a financial necessity.
If you're approaching the end of your career and cannot work any more because of your physical condition, claiming Social Security disability benefits -- if you're eligible -- could help you avoid an early claim for retirement benefits. If you're still early in your career, saving 15% to 20% of your income could allow you to build a big nest egg so you won't have to rely on Social Security if you find yourself involuntarily unemployed in your 60s. Whatever your situation, it's often worth exploring options to try to delay claiming benefits.
Have a plan
If you don't make a plan to save for retirement, there's a good chance you'll be forced to claim Social Security benefits out of financial necessity, rather than waiting until the time is right. Likewise, if you simply claim your benefits ASAP without looking into different Social Security claiming strategies, you could lose out on thousands of dollars.
Don't be one of the seniors who claims benefits at the wrong time. Take a few simple steps today -- like saving more by cutting spending and automating retirement contributions -- so you can claim Social Security benefits when you'll get the most money from this important government program.
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