If there were a single age at which Social Security eligibility began, the decision to file for benefits would be much simpler. But you actually get an eight-year window to claim benefits, beginning at age 62 and lasting all the way until 70 (you're not required to file at 70, but there's no financial reason not to).
Your actual monthly benefit, meanwhile, is a function of how much you earned during your 35 highest-paid years in the workforce, coupled with the age you claim it at. If you file at full retirement age (FRA), which is either 66, 67, or somewhere in between (depending on when you were born), you'll get the exact monthly benefit your earnings record entitles you to. If you file at any point before FRA, your monthly benefit will be reduced on a permanent basis. And if you delay your filing past FRA, you'll boost your benefits by 8% a year, up until age 70.
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It's for these reasons that seniors are often advised not to claim benefits early -- doing so could result in a pretty substantial financial hit. For example, claiming at 64 with a full retirement age of 67 results in a 20% reduction in your monthly benefit. Filing at 62 with the same FRA results in a 30% cut.
But still, in some cases, filing early isn't such a financially detrimental idea. If any of the following scenarios apply to you, you may be just fine taking benefits ahead of schedule.
1. You have plenty of personal savings
Many people enter their later years sorely lacking in savings. But if you're sitting on a few million dollars in retirement savings, then your Social Security income may not be all that significant compared with the amount you're able to withdraw from your nest egg. As such, filing for benefits early and reducing them in the process may not matter, and if you decide to use that money to enjoy life more when you're younger, that's just fine.
2. Your health is poor
Social Security is designed to pay you the same lifetime total regardless of when you initially file. That may sound strange, but the math goes like this: When you file early, you reduce your monthly benefit, but you also collect a greater number of individual payments. When you delay benefits, you get a larger monthly benefit, but fewer individual payments. All of this generally evens out if you live an average life span.
But if your health is bad, and you're unlikely to live a long life, then filing for Social Security early could actually make more sense than waiting, since doing so could give you a higher sum total of benefits in your lifetime.
Imagine you're entitled to a monthly benefit of $1,500 at a full retirement age of 67. (That's around what the average senior collects today.) Filing at 62 will reduce each payment you get to $1,050, but you'll have an extra five years of payments to work with. If you pass away at age 78 1/2, you'll mostly break even, regardless of whether you choose 62 or 67 as your filing age. But if you only live until 75, you'll come out about $20,000 ahead in your lifetime by claiming benefits at 62. As such, filing early if you have a shorter life expectancy is actually a smart move in many cases.
3. You don't have a surviving spouse to worry about
We just discussed the fact that a shortened life expectancy is a good reason to claim Social Security early -- but that assumes you're single. If you're married, your spouse will be entitled to monthly survivors benefits upon your passing equal to the amount you collected each month (assuming your spouse waits until full retirement age to file). As such, the decision to claim benefits early is not so simple when you have another person's financial fate to consider.
If you're single, though, then filing early isn't really problematic. That way, you get the most amount of money in your lifetime without the guilt associated with denying a loved one a higher income stream.
Let's be clear: In many cases, claiming Social Security early could result in a world of financial stress during retirement. But if any of the above situations apply to you, then you may not regret the decision to claim benefits early and get your money sooner.
