There's a reason seniors are often advised not to claim Social Security too early. Doing so could result in a lower income stream for life.
You're entitled to your full monthly benefit based on your lifetime earnings once you reach full retirement age (FRA). FRA kicks in at either 66, 67, or somewhere in between, depending on when you were born.
If you file for Social Security at the earliest possible age of 62, you'll slash your monthly benefit by up to 30%. And don't be fooled into thinking your benefit will then be bumped up to its full amount once you reach FRA, because that's not going to happen. Instead, you'll generally be stuck with a lower monthly benefit for life.
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In spite of that, claiming Social Security at age 62 can actually make a lot of sense. This especially holds true if these scenarios apply to you.
1. Your career has come to an unexpected end
It's one thing to keep working until FRA and claim Social Security then. But if you're forced to make a surprise early workforce exit, you may have to sign up for benefits sooner. If you don't, you might rack up costly debt just to live.
Why might you have to retire sooner than planned? There are a host of reasons. You could start having health issues that make continuing to work full time impossible. Or, you might get downsized out of a job and struggle to find another one at your age (let's not pretend that older workers don't face their share of struggles getting hired, even though companies aren't supposed to discriminate based on age).
As such, you might have to claim Social Security as an alternative to living on credit cards. And to be clear, that's a wise route to take.
2. You're not super confident in your health
Social Security is actually designed to pay you the same total lifetime benefit regardless of when you file. The logic is that signing up early will give you smaller payments each month, but more months of payments, while signing up later will do the opposite.
This assumption only works, however, if you live an average lifespan. And so if health issues arise as retirement nears, it could pay to claim benefits as soon as you can if you're worried you won't live a long or even average lifespan. Doing so could make it so you're able to get more money out of Social Security in your lifetime, which should ultimately be your goal.
3. You've saved so much your benefits are really just bonus cash
If you're coming into retirement with $90,000 in your IRA or 401(k) plan, then let's face -- you're going to need all the money you can get out of Social Security to cover your senior living costs. But if you're entering retirement with a $4 million nest egg, then it probably doesn't matter whether you collect $1,200 a month from Social Security, $2,000 a month, or somewhere in between.
In that scenario, chances are, the overwhelming bulk of your senior income will be coming in the form of IRA or 401(k) withdrawals. And so if you have the desire to claim Social Security early and use that money for things like vacations and leisure purchases, why not do it?
Though claiming Social Security at age 62 will leave you with less money every month -- for life -- it's not necessarily a bad idea. Quite the contrary -- it could end up being one of the smartest moves you'll make for your retirement.
