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Sorry to Say: You Probably Shouldn't Claim Social Security at 62

By Catherine Brock - Mar 20, 2021 at 6:06AM

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Here's how you'll know if early retirement is an option.

Yes, you can claim Social Security as early as age 62. But should you?

For many Americans, the answer is a resounding no. Here's why. When you claim at age 62, the benefit formula lowers your monthly Social Security income by up to 30%. That reduction puts more pressure on your retirement savings in two ways. You'll obviously need to take higher withdrawals from your retirement account to cover the shortfall. Plus, you'll need to take those higher withdrawals for a longer period of time.

There are other factors, too. When you start receiving Social Security before your Full Retirement Age (FRA), you are subject to income limitations. Make too much in wages and you'll see another reduction in your Social Security benefit.

If you choose not to work instead, you may lose your employer-sponsored health plan. That gets expensive unless you qualify for early access to Medicare. And then there's the simple math of earning a paycheck for a few more years and how that helps you pay down debt and improve your financial security.

Senior man on couch looking at laptop

Image source: Getty Images.

It's possible, though, that you are in the minority of Americans who has saved enough to fund an early retirement. You can confirm this by following the four steps below.

  1. Check your Social Security benefit.
  2. Project your savings balance at age 62.
  3. Estimate your income available from your savings.
  4. Add up your total estimated retirement income.

1. Check your Social Security benefit

You can easily check your Social Security benefit by creating an account at my Social Security. Once you log in, you'll see your projected benefit at different claiming ages based on your actual work history.

2. Project your savings balance

You can project your future savings using the SEC's compound interest calculator. You'll need these pieces of information:

  • Your portfolio balance today
  • The amount of your monthly contributions
  • The number of years until you reach age 62
  • Your portfolio's estimated growth rate

The estimated growth rate is the wildcard here. Projecting future investment performance can be tricky, especially for shorter time periods. While the stock market grows at about 10% annually over the long term, results in a single year can be much higher or lower than that average.

A look at the changes in the S&P 500 index over the last five years demonstrates this. The S&P 500 is considered a benchmark for the stock market as a whole. As you can see in the chart below, the index grew significantly in 2016, 2017, 2019, and 2020. But it lost ground in 2018.

^SPX Chart

^SPX data by YCharts

And then there's the additional variable of how you are invested. If your portfolio has a high percentage of bonds and cash, it's not realistic to plan on double-digit returns. It might not even be realistic to assume your account's recent growth will continue at the same pace.

What you can do is look at a range of conservative growth rates, say from 4% to 8%. The lower end of that range should be appropriate if you have a mix of stocks, bonds, and cash in your account. The higher end may be more accurate if you are invested almost entirely in stocks.

But again, keep in mind that these rates could be wildly inaccurate over short periods of time. That's why it's helpful to plan conservatively. The hope is that you'll be pleasantly surprised, rather than terribly disappointed, at your portfolio's performance.

3. Estimate your income from savings

For most retirees, it's usually safe to withdraw 4% annually from the retirement portfolio in the first year. So if you have $1 million in savings, you can safely take $40,000 in distributions. Thereafter, you'd adjust that 4% amount to keep pace with inflation.

4. Add up your retirement income

Now you can add your projected income from savings to your estimated Social Security, assuming you claim it at 62. If the sum is less than 80% of your income today, you may have to downgrade your lifestyle substantially to make that work.

Senior couple walking on mountain trail

Image source: Getty Images.

When your projected retirement income isn't enough

Don't give up hope if the math says you can't retire comfortably at age 62. There are steps you can take to change course quickly. You could, for example, downsize now and cut unnecessary expenses from your budget. That should free up cash, which could fund debt repayments and higher retirement contributions.

You can also take steps to increase your income by getting a second job or going for a promotion at work. Higher income helps raise your Social Security benefit.

And finally, you could compromise on your timeline. If pushing back retirement by a year or two substantially improves your lifestyle, it may be worth it.

The decision to retire and claim Social Security at age 62 is a personal one. You may look forward to getting rid of your work stress -- but don't make the mistake of swapping it out for financial stress. Be open to adjusting your early retirement plan, so that you can truly enjoy your senior years.


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