Age 62 is the most popular age to sign up for Social Security, and for good reason: It's the earliest age you can claim benefits and get your hands on that money. But doing so will cause your monthly benefits to go down, leaving you with less income -- for life. In fact, many seniors don't realize just how detrimental claiming benefits early is to their retirement, so if you're planning to sign up for Social Security the moment you're eligible, make sure you understand what sort of hit you'll be taking on that money.
The financial consequences of claiming Social Security at 62
Your Social Security benefits are calculated by taking your average monthly wage over your 35 highest-paid years on the job and then adjusting that figure for inflation. You're entitled to your full monthly benefit based on your earnings history once you reach full retirement age, or FRA. If you were born in 1960 or later, your FRA is 67. If you were born between 1943 and 1954, it's 66. And if you were born between 1955 and 1959, it's 66 and a certain number of months.
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Meanwhile, filing for Social Security ahead of FRA will result in a 6.67% reduction in benefits for the first three years you file early, and a 5% reduction for each year after that. Now the average senior today collects about $1,500 a month in benefits, so let's assume you're eligible for the same amount of money once you retire. Let's also assume that your FRA is 67. In that case, here's what filing early could do to your benefits:
|
If You Claim Benefits at Age: |
You'll Lose This Percentage of Your Monthly Benefit: |
And Wind Up With This Amount: |
|---|---|---|
|
66 |
6.67% |
$1,400 |
|
65 |
13.34% |
$1,300 |
|
64 |
20% |
$1,200 |
|
63 |
25% |
$1,125 |
|
62 |
30% |
$1,050 |
TABLE AND CALCULATIONS BY AUTHOR; DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
As you can see, filing for Social Security at age 66 with an FRA of 67 doesn't result in such a monumental hit. Instead of collecting $1,500 a month, you wind up with $1,400 a month. But the difference between filing at FRA and filing at age 62 is huge. And chances are, it's a hit you can't really afford to take.
Now to be clear, there are some scenarios where signing up for Social Security at age 62 makes sense. An estimated 50% of seniors today retired sooner than planned, according to TD Ameritrade. If something similar happens to you, and you're out of a job by age 62, then you may have no choice but to claim benefits as early as possible. Similarly, if your health is really in bad shape, and you're unlikely to live a long life, you'll generally get more income from Social Security in your lifetime by taking benefits early rather than waiting. But much of the time, signing up for Social Security at 62 will hurt you more than it helps you, so rather than rush to get your hands on that money, be a little patient so you ultimately wind up with more of it.
