You may not realize how heavily you'll rely on Social Security until you kick off retirement and see how much money it actually costs. That's why it's important to secure a nice, robust monthly benefit for your senior years.
Now your monthly benefit is calculated based on your personal earnings history during your 35 highest-paid years of wages. From there, you're entitled to that benefit once you reach full retirement age (FRA), which is either 66, 67, or somewhere in between, depending on the year you were born. But you're allowed to sign up for Social Security as early as age 62. For each month you claim benefits early, however, they're reduced on a permanent basis, and that's where the danger lies. Though filing for benefits ahead of FRA gets you your money sooner, collecting a lower monthly payment could really hurt you, especially in these scenarios.
1. You don't have a lot of retirement savings
Social Security is only supposed to make up a portion of your total retirement income, and the rest is supposed to come from savings or another source. But if you're low on savings and don't have another immediately obvious means of earning or collecting money in retirement, then you may end up being especially reliant on Social Security to get by. And in that situation, cutting your benefits by filing early could be a downright dangerous move.
2. You have a family history of longevity
Living a long life is a great thing in theory -- but it also increases your likelihood of depleting your nest egg in your lifetime. If you have a family history of longevity, then locking in a lower monthly Social Security benefit could prove problematic. The longer you live, the harder it will be to stretch your savings, in which case you'll want more money from Social Security, not less.
3. Your retirement plans are expensive
Some people spend their senior years enjoying time with family and pursuing low-cost hobbies, like gardening or knitting. But if your plans for retirement will require you to spend a lot more money -- say, you're hoping to travel the globe, frequent the golf course, and take in a lot of live music and theater -- then having more money from Social Security will definitely be helpful, whereas slashing your benefits by claiming them early is a move you might sorely regret. In fact, if you file early but forge forward with your high-end plans, you could end up struggling greatly down the line.
When should you file for benefits?
Sometimes, claiming Social Security early makes a lot of sense. If your company downsizes and you're forced out of a job, for example, then you may need to file for benefits to avoid having to rack up debt in the course of paying your ordinary expenses. But before you sign up for benefits ahead of FRA, make sure you understand the consequences involved. Locking in a lower monthly benefit for life is a move that could truly make your retirement more stressful and miserable than it needs to be, so think carefully before finalizing such an important, life-altering decision.