You'll often hear that signing up for Social Security at 62 is a bad idea. The reason? It will result in a lower monthly benefit for the rest of your retirement.
You're eligible to receive your full monthly benefit based on your earnings history once you reach full retirement age. FRA is either 66, 67, or somewhere in between, depending on when you were born.
If you claim Social Security at age 62, your benefits will be slashed by 25% to 30%, depending on your specific FRA. And that's a pretty big hit to take. In spite of that, it makes sense to file for benefits at 62 under these circumstances.
1. You want to
If you're entering retirement with a multi-million dollar nest egg, then chances are, your savings will constitute your primary income source. And so if that's the case, you've basically earned the right to file for Social Security whenever you want to, since those benefits will really only be a secondary source of income for you.
In fact, you may be in a position where your Social Security benefits will be used for leisure spending only. And if that's the case, then you should feel free to claim those benefits at whatever age works for you.
2. You need to
You may not want to claim Social Security at 62 because you'd rather have a higher monthly benefit to look forward to. But if you're laid off at age 62, you might have to file for benefits in the absence of being able to get a new job.
Unfortunately, getting hired can become more difficult later in life. Though it's illegal to refuse someone a job based on age, it's also a hard thing to prove. And so if you find yourself out of work come age 62, claiming Social Security may be your only option for replacing your lost paycheck.
Even if you're not forced out by your employer, health issues could make it so you have to retire on the early side. And if that's the case, you might need to file for benefits at 62 to ensure that you have enough income to cover your expenses.
3. You can turn that money into an ongoing income stream
Some people file for Social Security early with the intent to invest that money in stocks and grow it into a larger sum. That's a somewhat risky prospect, though, because you'll need to generate a high enough return to outweigh the hit you'll take for claiming benefits early.
On the other hand, if you file for Social Security at 62 and use your benefits as seed money to start a business, you might generate more than enough revenue to compensate for a lower benefit. This especially holds true if you've mapped out a business plan and have savvy management skills.
What's the right decision for you?
Claiming Social Security at age 62 doesn't make sense for everyone. If you're low on retirement savings and have the option to keep working well into your 60s, then it might pay to snag a higher benefit and avoid a financial crunch throughout your senior years. Similarly, if you enjoy your job and are able to keep at it, then you might as well hold off on claiming Social Security so your monthly benefit can grow.
But if the above scenarios apply to you, then filing for Social Security as early as possible is a move that might serve you very well. And so it pays to consider the upside of claiming benefits once your 62nd birthday arrives.