If you're turning 62 in 2021, congrats -- you've reached the age when you become eligible for Social Security retirement benefits. But just because you could claim them this year doesn't mean it's a good idea to start getting your checks.
In fact, doing so could leave the average person around $5,400 per year poorer. Here's why.
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Claiming Social Security at 62 could be a costly choice
Although you can claim Social Security at 62, doing so would mean accepting a reduction in benefits due to early filing. See, everyone has a full retirement age (FRA) set by law and determined by birth year. If you're turning 62 this year, since you were born in 1959 your full retirement age is 66 and 10 months.
For every month you claim prior to FRA, you're faced with an early filing penalty equaling 5/9 of 1% for the first 36 months and an additional 5/12 of 1% for each year thereafter. If you claim benefits right at 62 with a FRA of 66 and 10 months, you're claiming 58 months early. Your early filing penalty equals:
- 5/9 of 1% times 36 months
- 5/12 of 1% times 22 months
The total amount of your penalty is 29.167%, so your checks shrink by this amount. The specific amount you'll lose depends on exactly how much your standard benefit would've been had you waited. In 2021, the average Social Security benefit is $1,543, so if you were in line for around the average amount at FRA, a 29.167% reduction could reduce it by around $450 per month.
If you do the math, your choice to claim your Social Security benefits at age 62 could cost you a whopping $5,400 in annual benefits. And the reduction is permanent -- your monthly income won't be recalculated upward at full retirement age.
Does that mean you shouldn't claim benefits at 62?
Cutting your income by more than $5,400 a year seems like a bad financial choice, and for many people it is. In fact, for around six in 10 retirees, the financially optimal decision is to wait to claim Social Security benefits until age 70. Doing so not only means you won't face early filing penalties, but also that you'll raise your monthly income by earning delayed retirement credits.
But you also have to consider that delaying benefits comes at a cost. For every month you wait past age 62, you're giving up an entire month of income. You have to make that money back to break even. The higher checks you get later can eventually make it up, but that takes time and not everyone lives long enough for it to happen.
It's also worth noting that, in theory, it's not supposed to matter when you claim Social Security, since the program is designed to equalize lifetime benefits. In fact, that's why early filing penalties and delayed retirement credits exist in the first place -- so those who claim early get smaller checks but receive more of them, and those who claim late get larger payments to compensate for the fact that they won't get as many. But this design is based on life expectancies for all beneficiaries, and you may outlive yours or pass away sooner.
Ultimately, you'll need to weigh the pros of claiming early versus delaying to decide what's best. But one of the most important things to consider in making that choice is that your checks will provide thousands less in income each year if you start them at 62. That may or may not be the price you're willing to pay for getting benefits ASAP.
