Your Social Security benefits are calculated by applying a special formula to your average indexed monthly earnings over your 35 highest-paid years in the workforce. But you'll need to wait until full retirement age, or FRA, to collect your monthly benefit in full. The Social Security Administration will let you claim benefits as early as age 62, but for each month you file ahead of FRA, your monthly benefit is reduced in the process.

Of course, the upside of claiming benefits early is getting your money sooner. But here are three reasons why filing ahead of FRA is a really bad idea.

1. You'll reduce your monthly benefit for life

An estimated 64% of Americans have less than $10,000 socked away for retirement. If you're part of that statistic, and you're nearing retirement, then your chances of catching up are pretty slim. If that's the case, then you'll no doubt rely heavily on Social Security to pay the bills as a senior, and so slashing your primary retirement income stream is a truly unwise move.

Older man holding his head, looking serious


Imagine you're entitled to a $1,500 monthly benefit (which is around what the average senior collects today) at an FRA of 67. Filing at 62 will reduce each monthly payment you collect to $1,050, leaving you with an annual income of just $12,600, assuming you don't have savings or a pension. That's barely above the poverty line for a single person household, and it's certainly not enough money to buy yourself a comfortable retirement.

2. You may need the money for unplanned retirement expenses

Just as surprise expenses can pop up during your working years, so too can they arise at any point during retirement. If you choose to own a home as a senior, you may be hit with rising property taxes or a string of costly repairs that wreak havoc on your budget. Your healthcare expenses may also amount to more money than expected, or you might need long-term care, whether that means residing in a nursing home or depending on the assistance of a home health aide.

In the absence of a crystal ball, it's impossible to predict exactly what your retirement expenses will look like. But if you file for benefits early and slash your monthly Social Security income in the process, you'll have a harder time absorbing unplanned bills both large and small.

3. You never know how long you're going to live

If your health is poor going into retirement and you're unlikely to live a long life, then claiming benefits early often makes financial sense. But if you're likely to live longer than the average senior, then the opposite holds true -- you're better off waiting on benefits to secure a higher lifetime payout from Social Security.

The problem, of course, is that you can't predict how long you'll live. But if you don't have any glaring health issues, then it's fair to assume you may wind up living well into your 80s or 90s, in which case filing early means shortchanging yourself substantially.

Going back to our example, if you're entitled to a $1,500 monthly benefit at an FRA of 67 but you file at 62, you'll reduce each of your monthly payments to $1,050. However, you'll mostly break even if you live until 78 1/2. The average senior today, meanwhile, is expected to live until his or her mid-80s, and if you wind up living until age 86, you'll come out almost $40,000 ahead in your lifetime by filing at 67 rather than claiming benefits five years earlier.

Don't rush to take benefits

It's tempting to file for Social Security early when that money is sitting there available to you. But before you rush to claim your benefits, think about the advantages of waiting. Holding off until FRA means you don't reduce your monthly benefit, you get more leeway in the face of financial surprises, and you open the door to a higher lifetime total from Social Security. Therefore, unless you've lost your job or have a truly pressing reason to file early, aim to hold off until FRA, or even beyond. You can delay benefits up until age 70 and boost them substantially in the process.