Seniors who are eligible for Social Security benefits can claim them starting at age 62. But your full monthly benefit based on your earnings history isn't yours until you reach full retirement age (FRA) -- either 66, 67, or somewhere in between, depending on your year of birth.
Currently, 62 is the most popular age to file for Social Security, with nearly 35% of seniors claiming benefits as early as possible. And well more than 50% of beneficiaries sign up for Social Security before reaching FRA.
But there's a downside to going that route, and it's shrinking your benefits for life.
IMAGE SOURCE: GETTY IMAGES.
The average senior today on Social Security receives roughly $1,500 a month. If that's the benefit you're looking at come FRA, filing at 62 will leave you with just $1,050 a month instead. So, if you claim benefits at 62, there's a good chance you'll wind up regretting it, especially if your living costs climb during retirement and you find yourself cash-strapped because of your rash decision.
The same holds true even if you don't file at the earliest possible age of 62. If you claim benefits at 65 instead of waiting until your FRA of 67, you'll still be looking at a permanent reduction of 13.34%.
If you'd rather not wind up kicking yourself for claiming Social Security at the wrong time, here's how to avoid filing for benefits early and bemoaning that decision for the rest of your retirement.
1. Know your full retirement age
A 2017 Fidelity survey found that 74% of Americans don't know their FRA. If you're part of that statistic, commit that number to memory so you don't wind up filing early out of sheer confusion. Your FRA is based on your year of birth, as per the following table:
|
Year of Birth |
Full Retirement Age |
|---|---|
|
1943-1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 or later |
67 |
DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
2. Keep your job skills current
Many seniors claim Social Security early not because they want to, but because they're forced out of a job and feel compelled to file in the absence of a paycheck. You can avoid that predicament, however, by keeping your job skills as up to date as possible, even if you are planning to exit the workforce permanently in a few years. That way, you're less likely to lose your job in the first place, and if you do, you're apt to have an easier time getting another one.
3. Have a healthy nest egg
Some people claim Social Security ahead of FRA because they need the money. But a good way to avoid having to do that is establishing a solid nest egg for yourself during your career. If you contribute a healthy sum of money to your retirement savings and invest that cash wisely for added growth, you'll be better positioned to avoid an early filing due to financial constraints.
How much of an effort will you need to make to build a robust nest egg? It depends on how many years you have to sock that cash away and what your ultimate savings target is. But let's say you're hoping to amass $500,000 for retirement. Saving $300 a month over 35 years will pretty much get you there if you invest it for an average annual 7% return, which is a reasonable return for a portfolio that consists largely of stocks.
Claiming Social Security early is common practice, but it's a move you could easily wind up regretting. Rather than short yourself on a substantial retirement income stream, make every effort to hold off on taking benefits until FRA -- or even beyond. For each year you delay Social Security past FRA, you'll boost your benefits by 8% a year, up until age 70, which gives you a very good reason to sit tight.
