Social Security helps millions of seniors pay the bills in retirement, which is why choosing the right filing age is crucial. Though your benefits will be calculated based on your 35 highest years of earnings on record, the age at which you file will also dictate your ultimately monthly payout. If you file at full retirement age (FRA), you'll get the full monthly benefit your earnings record entitles you to. FRA is either 66, 67, or somewhere in between, depending on your year of birth. Delay past FRA, and you'll boost your benefits by 8% for each year you hold off, up until you turn 70.
There's also the option to claim benefits ahead of FRA, and the earliest age to do so is 62. For each month you file early, though, your benefits will be reduced by a certain percentage. If your FRA is 67 and you take benefits at 62, you'll lower them by 30%.
So you'd think that most seniors would be loath to file at 62, as it subjects them to the highest possible reduction in benefits. But oddly enough, 62 remains the most popular age for retirees to claim Social Security. The reason? Often, it boils down to not having a choice.
Why seniors file as early as possible
The upside of claiming Social Security at 62 is getting access to that money as quickly as possible. But many people snag those benefits early out of desperation more so than impatience. A good 60% of seniors wind up forced into retirement sooner than planned, according to Voya Financial. When that happens, and they don't have the savings to tide themselves over, they're forced to fall back on Social Security.
And make no mistake about it: Many Americans reach their early 60s without savings. At present, an estimated 42% of workers have no money set aside for retirement whatsoever. Anyone in that boat who loses a job in the early 60s, or is unable to work due to health issues, will have no choice but to file for Social Security the moment those benefits become available, even if it means potentially reducing them for life.
Of course, the problem is that seniors lacking in personal savings need more money from Social Security in their lifetime, not less. And if your nest egg is virtually nonexistent, claiming benefits early could mean sentencing yourself to a lifetime of poverty when you're older.
Don't get backed into a wall
Since many seniors claim Social Security at 62 because they have to, not because they want to, one way to protect yourself from that possibility is to save reasonably during your working years. This way, if you do find yourself out of a job or unable to work in your early 60s, you might have the option to hold off on Social Security and grow your benefits rather than reduce them on what could be a permanent basis.
Saving a mere $200 a month over a 30-year period could leave you with a $227,000 nest egg if your investments were to generate an average annual 7% return during that time (and that's more than doable if you invest your IRA or 401(k) heavily in stocks). And $227,000 could very well be enough to tide you over for up to five years if you find yourself out of work before FRA rolls around.
Of course, filing for Social Security at 62 doesn't always work out terribly. If you're in the opposite situation of having lots of savings, you might claim those benefits early so you can enjoy them when you're younger. What you don't want, however, is to be compelled to claim them out of desperation, like so many seniors are.
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