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Claiming Social Security at 62? You May Need to Rethink That

By Chuck Saletta - Nov 25, 2021 at 10:30AM

Key Points

  • There's a substantial penalty for working while claiming Social Security benefits if you're 62.
  • Your monthly benefits -- and their inflation adjustments -- will be permanently reduced by claiming early.
  • Your spouse might appreciate a little extra financial cushion once you're gone.

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It's tempting to claim your benefits as early as you can, but it just might pay to wait.

One of the biggest decisions most people have to make when it comes to Social Security is when to start taking benefits. You can start your retirement benefits as early as age 62, but the longer you wait -- up until age 70 -- the higher your monthly benefit will be.

The most popular age to claim benefits is 62, and it does have the advantage of offering you the greatest number of checks you can receive over your lifetime. Still, if you're planning on claiming Social Security at 62, you may need to rethink that.

That one advantage comes with lots of disadvantages attached, and if you're not prepared for them before you make that decision, it can cause more trouble than you realize. Read on to find out five reasons why.

Couple talking with a financial planner.

Image source: Getty Images

No. 1: If you're still working, you'll be penalized

At 62, you're younger than what Social Security considers your full retirement age. As a result, you'll be penalized for collecting your benefits if you're still drawing a paycheck. That penalty is steep -- in 2021, it's $1 for every $2 you earn above $18,960 in the year.

As a result, it generally doesn't make sense to collect your Social Security benefits while you're still working if you're below full retirement age. If you're making a decent salary, you could even lose your entire benefit while you're still working, which makes it a complete waste.

No. 2: Your monthly benefit will be permanently reduced

Because you'll be collecting money for longer, your monthly benefit will be well below what you'd collect by waiting until your full retirement age (FRA). If you were born in 1960 or later, you'll get 30% less than what you'd get with the same earnings record by waiting until your FRA.

If you thought your monthly benefit would be $1,563 -- about the average that retirees currently receive  -- your actual benefit would be closer to $1,094. That's a substantial reduction, and if you're not planning on it, it could make a material difference in what you'll be able to afford during retirement.

No. 3: You may have $0 or low-earnings years on your record

Social Security bases your benefit level on your highest 35 years of covered earnings. The younger you are when you claim benefits, the bigger the chance that you'll have $0 or really low-income early-career years on that list. If you're able to keep working past age 62, you might be able to replace those with some decent, late-career-level earnings numbers.

Having more earnings on your record can make a key difference in what you get from the program, especially if you're planning on Social Security providing a large portion of your retirement income.

No. 4: Your inflation protection will be less

Every year, Social Security will review how hot inflation has been and will adjust benefits if costs have risen sufficiently. The inflation adjustment for 2022 is a whopping 5.9%, which is the highest amount in decades. While everyone gets the same percentage increase, those who have a higher benefit level get more dollars from their inflation adjustment.

That amount compounds with every inflation adjustment, which means that it's simply that much easier for someone who has delayed claiming Social Security to keep up with inflation over time. The table below shows the difference that waiting to claim can have on that inflation protection. It shows the potential range of pre- and post-2022 inflation-adjusted benefits for a person whose full retirement age is 67 and whose benefit at FRA in 2022 would be $2,000 per month.

Claiming Age

Prior Benefit

Inflation Boost

New Benefit

62

$1,400

$82.60

$1,482.60

67

$2,000

$118.00

$2,118.00

70

$2,480

$146.32

$2,626.32

Data source: Social Security. Table by author.

When you're living on a fixed income, every little bit helps. Having both a larger everyday benefit and getting more dollars with that inflation adjustment by waiting past 62 can make the difference between staying comfortable and having to make tough choices.

No. 5: Your surviving spouse might thank you

When one member of a married couple passes away, the surviving spouse can often get the higher of the couple's two Social Security benefits. While the surviving spouse might be able to live on less than the two could live on as a married couple, the loss of income from going down a benefit could still be financially painful.

In addition to the direct loss of money, a widow or widower soon loses the ability to file taxes jointly. That means that any remaining income might be exposed to higher taxes, which could make a tough situation even tougher.

As a result, consider who you may leave behind once you pass and what your passing will mean for their financial well-being before deciding when to collect your Social Security benefit. Waiting a bit could make an incredible difference to someone you love.

Waiting just might be worth it

Social Security is designed to play a part in -- but not be the only source of funding for -- your retirement. When considering whether 62 is the right age for you to claim benefits, be sure to look at your total financial picture before committing. You just might find that waiting a bit could end up being a better overall choice.

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