The age you land on for claiming Social Security could affect the monthly benefits you receive for life. Those benefits themselves are calculated by taking your average monthly earnings during your 35 highest-paid years in the workforce, adjusting them for inflation, and applying a special formula to that number. You're then entitled to collect your monthly benefit in full once you reach full retirement age.
But you actually get an eight-year window to sign up for benefits that starts at age 62 and ends at age 70. In fact, you technically don't have to sign up at 70, but delaying past that point won't put more money in your pocket, so there's no sense in waiting longer.
Currently, 62 is the most popular age for seniors to start collecting benefits. But if you're contemplating that decision, you may be inclined to go with age 65. And while that could be a wise choice in some cases, here are three terrible reasons to land on 65 as your filing age.
1. You don't know your full retirement age
You might assume that 65 is your full retirement age for Social Security purposes because that's when you're first eligible for healthcare coverage under Medicare. But for people born between 1943 and 1954, full retirement age is 66. For those born between 1955 and 1959, it's 66 and a certain number of months. And for those born in 1960 or later, it's 67.
If you sign up for Social Security at 65, you'll automatically slash your monthly benefits between 6.67% and 13.34%, depending on your full retirement age, so rather than grapple with a lifelong reduction in Social Security income, commit your full retirement age to memory. Incidentally, in a recent Nationwide survey, only 24% of older adults knew what their full retirement age was, so if you're nearing retirement, be sure to get that number straight.
2. You're worried you won't get Medicare coverage
It could be the case that you want to start getting Medicare benefits at 65 and aren't ready for Social Security -- but you sign up for Social Security at that age anyway because you're convinced your Medicare coverage hinges on it. In reality, though, you can be on Medicare for years before claiming Social Security, and it won't impact the level of care you receive.
The only drawback to signing up for Medicare before Social Security is that you won't have the option to pay your Part B premiums directly from your Social Security benefits. Not only does that mean you'll need to take that step yourself, but it also means you don't get protection under Medicare's hold harmless provision. This provision effectively caps the extent to which your Medicare premiums can rise from year to year when you're on Social Security, because an increase in Part B can't cause your monthly benefit to go down.
In other words, if your annual cost-of-living adjustment raises your monthly Social Security benefit by $12, but Medicare premium costs rise by $13, you're only liable for the extra $12. Still, the reduction in benefits you'll face by claiming Social Security early will generally well outpace any increase Part B throws at enrollees, so if you're ready to sign up for Medicare at 65 but don't need your Social Security benefits just yet, don't feel compelled to claim them.
3. You're scared Social Security is running out of money
There are rumors abounding that Social Security is on the verge of bankruptcy, but actually, that's far from true. Social Security gets its funding from payroll taxes, so despite the program's financial woes, it's not in danger of going away. Right now, the worst-case scenario is a potential cut in benefits in 2035 to the tune of 20%, but that assumes lawmakers won't step in and prevent that from happening, which many are invested in doing.
Therefore, don't file for Social Security at 65 because you're worried that by waiting, you'll risk not getting paid any benefits at all. That scenario just isn't on the table, and if you file at 65 rather than wait until full retirement age or later, you'll risk losing out on a substantial amount of monthly income for life.
Claiming Social Security at 65 isn't always a bad idea, and with regard to reducing benefits, it doesn't cause nearly the same extreme hit as filing at 62. But if you're going to sign up for Social Security at 65, make sure you're doing so for the right reasons, and not because you're ill-informed or are buying into myths.