Your Social Security benefits are based on your lifetime earnings -- specifically, your wages during your highest-paid 35 working years. The age you file for benefits at, however, can cause that number to change.
If you file at full retirement age, which is either 66, 67, or 66 and a certain number of months, depending on your year of birth, you'll get the exact monthly benefit you're entitled to based on your earnings history. However, you're allowed to claim Social Security as early as age 62, and currently, it's the most popular age to file for benefits.
But should you claim Social Security early? Here are three advantages to doing so.
1. You'll get your money sooner
Filing for Social Security ahead of full retirement age means getting your money sooner, and that could come in handy if you've lost your job or can no longer work for health reasons, yet you don't have enough savings to support yourself without supplemental income. Claiming Social Security early could spare you from racking up costly credit card debt at a time in life when you might otherwise feel like you have no other choice.
2. You'll get the option to enjoy your benefits when you're young
Maybe you don't need your Social Security benefits to pay the bills, but rather, you want the money to enjoy life when you're younger. It stands to reason that you'll have more energy to travel or pursue other hobbies at 62 than at 66 or 67, and since you've earned those benefits, you might as well use them at an age that works for you.
3. You'll come out ahead financially if you don't live a long life
For each month you file for Social Security before full retirement age, your benefits go down by a certain amount, and in most cases, that reduction remains in effect for the rest of your life. That's bad news if you have several decades of retirement ahead of you. But if your health is poor, and you have a shortened life expectancy because of it, you'll generally come out ahead financially on a lifetime basis by claiming Social Security as soon as you can.
Case in point: If you're entitled to a monthly benefit of $1,600 at a full retirement age of 67, filing at 62 will shrink your benefits by $480 on a monthly basis. But if you only live until age 73, you'll come out over $32,000 ahead on a lifetime basis.
On the other hand, here are three good reasons not to file for benefits early.
1. You'll probably reduce your benefits for life
If you file for benefits before full retirement age, the monthly payment you lock in will be the same amount you collect for life in most cases. The only exception is if you manage to undo your benefits by withdrawing your Social Security application within a year and repaying all of the money in benefits you collected. And limiting yourself to a lower monthly benefit could prove harmful if your savings aren't strong, and you're truly reliant on Social Security to pick up the slack.
2. You'll have benefits withheld if you're still working
You're allowed to work and collect Social Security at the same time, but if you do so before reaching full retirement age, you'll risk having some benefits withheld if your earnings exceed a certain threshold. That limit changes from year to year, but in 2019, you'll lose $1 in Social Security for every $2 you earn over $17,640. And if you're reaching full retirement age in 2019, you'll have $1 of Social Security withheld for each $3 you earn above $46,920. The money you have withheld will be added back into your monthly benefit once you reach full retirement age, but if your goal in filing early is to get your hands on more immediate income, that plan may not work out.
3. You'll lose out on lifetime income if you do live a long life
Just as it pays to claim Social Security early if you expect to pass away at a relatively young age, so too are you better off waiting on benefits if you anticipate living a long life. In the above example, you'd come out over $36,000 ahead by filing at 67 versus 62 if you were to live until age 85. And while you can't predict how long you'll live, if your health is great, there's a good chance you'll thrive well into your mid-80s, which is what the average life expectancy for a person reaching age 65 today looks like.
Clearly, there are pros and cons to claiming Social Security before reaching full retirement age. Keep these in mind if you're thinking of filing early so you make the right decision for your golden years.