There's a strong likelihood that you'll count on Social Security as a significant income source in retirement. Maybe those benefits will be needed to cover essential bills, like housing and healthcare. Or maybe you'll use those benefits for leisure and entertainment, which are important at a time in your life when you don't have a job to fill your days. Either way, your goal should be to get the most money from Social Security as possible. And filing for benefits at age 62 just isn't the way to do that.
The problem with claiming Social Security at 62
Age 62 is the earliest possible age to file for Social Security, and it's also the most popular, not surprisingly. But the Social Security Administration penalizes filers who sign up for benefits before full retirement age, or FRA, which is when those benefits can be collected in full.
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FRA ranges from age 66 to 67, and for each month a benefit is claimed prior to then, it's reduced on a permanent basis. If you were born in 1960 or later and are therefore looking at an FRA of 67, filing for Social Security at 62 will slash your monthly benefit by 30%. And that's a hit you probably either can't afford to take, or simply won't want to.
Say you're counting on Social Security to pay your basic bills. You might assume your living costs will decrease substantially once you leave the workforce, but most seniors need 70% to 80% of their former income to live comfortably. Now there's some wiggle room with that formula, especially if you're willing to live frugally, but some of your senior expenses may come in higher than expected, despite your best effort to minimize them. Health issues, for example, could cause you to run up a huge tab of medical bills, and that's not something you can help. Cutting your benefits by filing at 62 could therefore put you in a real crunch if you find that it costs more than anticipated just to exist.
And then there are your retirement goals to think about. Say you've always wanted to travel but couldn't really do so while you were working, raising children, and then paying for college. A higher Social Security benefit is apt to do a better job in funding a series of trips than a lower benefit.
Don't take the risk
Getting your money from Social Security as early as possible is tempting. But before you rush to claim your benefits at age 62, think about the risks of filing early and all you stand to gain by waiting. If you hang tight until FRA, you'll get your full monthly benefit without a reduction. And if you postpone your filing past FRA, you can accrue delayed retirement credits that boost your benefits by 8% a year, up until the age of 70. That increase could come in handy if retirement ends up costing a lot more than expected and you don't have a hefty savings plan balance to fall back on.
Another thing to keep in mind is that you don't know how long you'll live once you retire. Life expectancies are increasing, and while that's a good thing in theory, it means you'll need enough income to last throughout your senior years. By locking in a higher monthly benefit, you'll buy yourself protection and reduce your risk of running out of money in your lifetime. And that's reason enough to not claim your benefits at 62 despite the fact that so many Social Security recipients do.
