Many seniors grapple with the decision of when to file for Social Security, because while those benefits themselves are initially based on a given worker's lifetime earnings, the age at which they're first claimed can cause that number to go up, go down, or stay the same. Workers who wait until full retirement age to take benefits get the exact monthly payout their earnings records entitle them to. Those who wait beyond full retirement age (which is either 66, 67, or somewhere in between) accrue delayed retirement credits that boost those benefits by 8% a year up until age 70, thereby securing themselves an even greater monthly income for life. But seniors who file before reaching full retirement age face a reduction in benefits, the severity of which depends on how early said benefits are claimed.
Since 62 is the earliest possible age to file for Social Security, it's the age that triggers the greatest possible reduction in benefits a recipient might face. For someone with a full retirement age of 66, that reduction will amount to roughly 25%. For someone whose full retirement age is 67, we're talking about a 30% reduction.
But in spite of that, 62 remains the most popular age for seniors to claim Social Security. And while filing at that point might seem like a mistake, it may not actually be such a bad move after all.
Why seniors tend to jump the gun
Plenty of factors might drive the decision to claim Social Security as early as possible. For one thing, not everyone gets the option to work until a later age. In fact, 60% of U.S. workers end up being forced to retire earlier than planned, according to data from Voya Financial, and the reasons run the gamut from health issues to getting laid off.
At that point, one might choose to live off of savings to avoid taking a major hit on those monthly benefits, but since the median retirement savings balance among 60-something Americans is just $172,000, according to Transamerica, that doesn't translate into a whole lot of monthly income. In fact, when we apply a 4% annual withdrawal rate from savings, which many financial experts recommend, we get just under $6,900 of income per year -- hardly enough to pay the bills. Therefore, the decision to claim Social Security at 62 often boils down to not having a choice.
Furthermore, there are those people who fear that Social Security is on the verge of going bankrupt, so they want to get their hands on that money as soon as they can. Rest assured that the program is by no means going broke, but since its financial woes have been much publicized in recent years, it's understandable that many seniors would panic and act hastily as a result.
Finally, let's not gloss over the role one's health should play in deciding when to file. Though Social Security is designed to pay recipients the same total in lifetime benefits regardless of when they initially file, that formula only works for those who live an average life expectancy. Seniors who enter their 60s already grappling with serious medical issues are often wise to file for benefits at 62, since doing so will likely result in a higher lifetime payout than they'd get by waiting.
Does filing early really hurt seniors in the long run?
Many advisors feel strongly that waiting on Social Security is generally the best way to go, since filing early can result in a permanent reduction in benefits. But seniors who take benefits early are surprisingly content with that decision. A new report from the Journal of Aging Studies found that the majority of seniors who claimed benefits before reaching full retirement age didn't end up regretting that choice, despite the fact that it reduced their monthly payments. Furthermore, since seniors who live an average lifespan will effectively break even regardless of when they initially file, or so says the Social Security Administration, the drawbacks of claiming benefits at 62 suddenly become far less dire.
In fact, for many seniors, the decision to claim Social Security at 62 likely boils down to a desire to experience the same instant gratification we get when we see something we want in a store and buy it on the spot. When those benefits are ripe for the taking, it's hard to push past the urge to snatch them up and enjoy them -- even if waiting has its advantages.