While 62 is the most popular age at which to claim Social Security retirement benefits, it's not always a good idea for those approaching that age to sign up right away. Indeed, there are some very good reasons to hold off on claiming until you've reached your full retirement age. By filing on time, you'll get several very important benefits you wouldn't get by claiming earlier.
If you were born in 1954 or earlier and haven't gotten there yet, you reach full retirement age at 66 . If you were born in 1960 or later, you reach full retirement age at 67 . If you were born in between those two birth years, there's a two-month step up every year (so a person born in 1955 reaches full retirement age at 66 and 2 months). Read on to find out three very important reasons why waiting until that age can matter so much to you.
No. 1: You get what you expect from Social Security
First, claiming Social Security on time at your full retirement age means that your benefit will be linked to exactly what it should be based on your earnings history and Social Security's projections. If you have a My Social Security account, you can see Social Security's estimate for your benefit at any time. If you don't, Social Security will start sending you an estimate once you reach age 60.
If you claim early, your monthly benefit will be permanently reduced by as much as 30%. That's a smaller check every month for the rest of your life. The reduction is based on how far in advance of your full retirement age you claim. It starts at 5/9 of 1% per month for the first 36 months before your full retirement age, and then it's 5/12 of 1% for any additional months earlier than that.
No. 2: You don't get penalized if you keep working
If you claim Social Security before your full retirement age, you get penalized if you're still working. That penalty is as much as $1 for every $2 you earn above a certain threshold within the year -- which in 2018 is $17,040. As a result, it's quite possible to claim your Social Security benefits early, take the hit on your monthly benefit from claiming early, and then not even see that reduced benefit because you're still working.
That penalty doesn't apply once you reach your full retirement age. Once you've hit that age, you can collect Social Security and keep working to your heart's content without penalty. Note that your Social Security benefits may be subject to tax if your overall income is high enough. Also note, however, that the tax is there whether you're at full retirement age or not and whether you earn your money through working or investing or any other means.
No. 3: Your inflation adjustment is on a bigger base
Social Security benefits are adjusted for inflation over time. That said, there's an open question as to whether those inflation adjustments truly reflect the inflation levels that seniors see. Regardless of whether the adjustment is adequate, the fact remains that it is based on your benefit level.
For 2019, the inflation increase will be 2.8%. If your full benefit level were $1,400 per month, you'd get an additional $39.20 a month had you claimed at your full retirement age. If, on the other hand, that same benefit were reduced by 30% because you claimed early, your base benefit would only be $980 per month, and your increase would only be $27.44.
By claiming early, you sacrifice both some of your base benefit and the absolute dollar amount of your inflation adjustments. Particularly as you get deeper into your retirement and going back to work becomes that much more challenging, there's a benefit to having that larger Social Security inflation adjustment on your side.
You earned your Social Security, so benefit from it
Once you turn 62, you can choose when to collect your Social Security payments. While it might be tempting to take the money as soon as you can, waiting until your full retirement age to take it on time gives you three big benefits that you don't get if you start sooner. Choose carefully, and you'll improve your ability to leverage your Social Security throughout your golden years.
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