When is the best time to claim Social Security retirement benefits? This is a hot topic among financial experts and pre-retirees. Claiming benefits early could reduce them by as much as 30%, while waiting to file could lead to a big benefits increase -- around 8% annually between full retirement age and 70. Since age drastically impacts the size of your monthly checks, many people want to know whether they should claim sooner or later.
Unfortunately, there's no one right answer to when you should begin getting your retirement income from the Social Security Administration.
Any decision requires trade-offs. Look at claiming at age 62, for example. It's the most popular age to claim benefits, as well as the earliest age most benefits become available. But there are major pros and cons to starting benefits so young.
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Pros of claiming Social Security at 62
Starting your Social Security retirement benefits as soon as you become eligible for them has some significant advantages, including:
- Opening the door to early retirement: For many people, retiring early is a dream -- but one that's not achievable without getting some income from Social Security. If you want or need to leave work when you're in your early 60s, you may not mind the trade-off of getting a reduced Social Security benefit if that makes retiring possible.
- Preserving your savings: If you retire at 62 and don't claim Social Security, you may need to rely on your savings too much. If you draw down your account too quickly, you could end up with too little money to see you through retirement. You may be better off getting your retirement benefits so you can leave more invested to grow.
- Starting benefits before they lose more buying power: The value of Social Security benefits is eroding because they aren't keeping pace with inflation. Starting your benefits ASAP means you'll get more bang for your buck -- even if you have to accept a reduction in benefits.
- Avoiding worries about breaking even: When you delay your claim for benefits, you have to live long enough to make up for missed income. If you don't reach your break-even point, delaying will mean you get less money over your lifetime. If you start getting your checks ASAP, you don't need to gamble on outliving your projected lifespan.
Cons of claiming Social Security at 62
Although there's clearly a case to be made for starting your benefits ASAP, there are also some downsides. Some of the biggest disadvantages include:
- You'll permanently reduce the size of your check: Benefits could be reduced by as much as 30% compared with retiring at full retirement age, and all future cost-of-living increases will be based on a smaller starting benefit.
- You might lower your average indexed monthly earnings (AIME): Social Security benefits are based on average wages in the 35 years your earnings were highest. If you retire at 62, there's a chance you may not have a full 35 years on the job. If that happens, you'll end up with a lower average, since years of $0 wages are factored into it. If you retire when you're earning a substantial amount, you'll also miss the chance to prevent lower-earning years from getting factored into your average.
- You could reduce survivor benefits: This could lead to a reduced quality of life for your surviving spouse in retirement.
What's the right choice for you?
Ultimately, you'll want to weigh both the advantages and disadvantages of starting Social Security at 62 so you can decide what's right for you.
Your personal situation and your preferences for how you want retirement to go should guide your choice, but make sure you make it with both eyes open and an understanding of exactly how early claiming will affect the size of your checks.
