When you turn 62, you can claim Social Security retirement benefits. Sixty-two is the most popular age to start receiving Social Security income, with 34% of retirees in 2018 reporting they claimed benefits at 62.
While there are good reasons to claim Social Security at 62, that doesn't mean claiming benefits as soon as possible is always the right choice. In fact, there are plenty of really bad reasons for claiming benefits at 62, including the following three awful reasons for claiming Social Security benefits early.
Image source: Getty Images.
1. Because you think Social Security is going to run out
Far too many Americans believe Social Security won't be there for them when they retire. In fact, in one older Gallup poll, as many as six in 10 Americans thought there'd be no Social Security funds by the time they got ready to leave the workforce.
The reality is, while Social Security is in some financial trouble, it's unlikely the program won't provide promised benefits for future retirees. Social Security is funded through taxes collected from current workers, as well as from a trust fund projected to run out in 2034, according to the most recent Trustee's Report. Even if the trust fund runs out and no other changes are made, Social Security will still be able to pay retirees around 77% of promised benefits.
While 77% of benefits would be a big pay cut, retirees would still receive income -- and it's unlikely this cut would ever be allowed to go into effect. Social Security consistently polls as one of the country's most popular programs, and far more Americans support raising taxes to shore up and expand Social Security than support cuts to benefits.
Strong public support has turned Social Security into a "third-rail" of American politics, with few politicians openly supporting cuts or even major reforms. Previous efforts to make major reforms quickly eroded approval ratings of politicos who dared raise the issue, and politicians are justifiably wary of upsetting older constituents since seniors are a reliable and vocal voting block.
All of this means it's really unlikely you won't get promised benefits -- so don't claim benefits at 62 if your primary reason is fear the program won't be around much longer.
2. Because you don't understand how Social Security works
Many Americans claim Social Security benefits at 62 because they don't understand how Social Security works. Confusion about Social Security is an awful reason to claim benefits early because you could be in for some unpleasant surprises later.
Around nine in 10 future retirees don't understand how to maximize Social Security benefits, according to a recent Nationwide survey. Worse, close to 40% of pre-retirees responding to a Fidelity survey believe if they claim a reduced benefit early, their benefit will go up once they reach full retirement age (FRA).
Unfortunately, Social Security simply doesn't work that way. If you claim benefits before FRA, benefits are permanently reduced by 5/9 of 1% per month for each of the first 36 months before FRA and are further reduced by 5/12 of 1% for each month earlier than 36 months. You could see your benefit reduced by as much as 30% if you retire at 62 when FRA is 67.
By contrast, if you wait until after FRA, benefits keep increasing until age 70. If you're in good health and expect to live long enough to break even for delaying benefits, you could receive much more income by waiting. This is the strategy recommended by Stanford experts, as Social Security is the optimal source of retirement income since it increases with costs of living and offers lifetime income.
The fact that you'll get larger benefits at 70 doesn't mean it always makes sense to wait -- if you're in poor health or need your spouse to claim benefits on your work history, there are times when claiming at 62 actually does make sense. Calculate how much your benefits would be if you claim at 62 versus 70, figure out how long it will take you to make up for delaying, and make a fully informed choice -- don't assume claiming at 62 will net you the most income.
3. Because you need the money right now
Financial necessity is another awful reason to claim Social Security benefits at 62; especially as claiming early means you're accepting reduced income for life. The benefits reduction associated with claiming early is especially devastating when you'll be relying on Social Security to provide the bulk of your retirement income.
Unfortunately, financial necessity is a major reason so many retirees claim Social Security benefits earlier than planned. While only around a quarter of workers plan to retire before the age of 64, around three quarters of workers end up leaving the workforce for good before turning 65. Health problems, disability, or company restructuring are leading factors forcing workers into early retirement
Image source: Employee Benefit Research Institute.
If you're forced to leave the workforce early, determine if you're eligible for Social Security Disability benefits instead of retirement benefits. By applying for disability, you can wait until FRA to claim retirement benefits to avoid a benefits cut. If you're eligible, you could also claim survivor's benefits and delay claiming your own benefits.
Living off your savings to delay claiming Social Security is also a viable solution -- assuming you have savings. Start saving for retirement as early as possible, investing in a 401(k) or IRA to take advantage of tax breaks and ensure you have enough to live on when you retire.
By taking steps to reduce expenses, such as making a meal plan to avoid food waste and purchasing inexpensive used cars instead of buying new vehicles with car loans, you should be able to save more for retirement and won't be forced into taking Social Security out of financial necessity.
Be smart about claiming Social Security benefits
You don't want to claim Social Security benefits at 62 due to confusion over benefits, financial desperation, or a mistaken belief that you won't get benefits if you wait. Claiming benefits early can cost you thousands, so learn how Social Security benefits work before you make your benefits claim.
