You'll often hear that it's important to save independently for retirement because Social Security will only replace a portion of the wages you're used to living on. Ideally, you'll enter retirement with a solid nest egg that you can tap throughout the years.
But it's still important to claim Social Security strategically. And if you sign up at age 62, you might sorely regret that decision down the line.
The problem with filing as early as possible
Age 62 is the earliest age at which you can sign up for Social Security. However, you're not entitled to your full monthly benefit based on your personal earnings history until you reach full retirement age, or FRA.
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FRA hinges on your year of birth. And yours is either 66, 67, or 66 and a specific number of months.
If you claim Social Security at 62, you'll lock in a monthly benefit that's 25% to 30% lower than what it could've been at FRA (the exact percentage will depend on your precise FRA). And that could prove problematic in a number of scenarios.
Remember that nest egg we talked about building? You might enter retirement with a nice pile of money in your name.
But what if the market tanks at any point during your retirement? Taking withdrawals could mean locking in serious losses, and you may have no choice but to tap your savings in the absence of a higher monthly Social Security benefit.
Furthermore, as you age, your healthcare costs might increase. Plus, you could end up needing long-term care, such as a home health aide or an assisted-living facility, both of which can be exorbitantly expensive.
At that point in life, your savings might already be quite whittled down. But the great thing about Social Security is that the program is designed to pay you your monthly benefit for life. If you lock in a higher benefit by waiting until FRA to claim it, you'll have that higher payday to help you get by at a time when your bills might start mounting due to factors outside your control. Slash that monthly benefit by filing early, and you may end up struggling financially or putting the burden of covering your health-related needs on your loved ones.
Be careful when filing for benefits at 62
There are certain scenarios where claiming Social Security at age 62 makes sense. If you truly have millions of dollars in savings yet intend to lead a modest retirement lifestyle, then you may not get hurt financially with a lower monthly benefit. If you want that money sooner, so be it.
Also, if you have major health issues in your early 60s, to the point where you're not expected to live a very long life, then filing for Social Security at 62 could be your best bet. Doing so will shrink your benefits on a monthly basis but could result in a higher lifetime payout from Social Security.
Unless these specific circumstances apply to you, think carefully before rushing to claim Social Security as soon as you're eligible to do so. You may be eager to get your hands on that money, but waiting a few more years could make for a much less stressful retirement.
