It's more than fair to say that 2022 was a very tough, volatile year for investors. Not only did stock values plummet, but a lot of people saw their IRA and 401(k) balances take a hit.
But as stressful as a decline in portfolio value may have been for you, 2022 was no doubt a gloriously stressful year for retirees -- those who may not have had the luxury to ride out all of that volatility. And that's precisely why claiming Social Security at age 62 could end up being a very bad idea -- even if you're convinced it's the right time to sign up.
Set yourself up to withstand market volatility
Ideally, once you reach retirement, your portfolio assets will be allocated in a manner that's appropriate for your age. That generally means not being too heavily invested in stocks (though you also do not want to unload your stock holdings completely).
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But even if you move over to safer assets, like bonds, you never really know what the market might have in store for your portfolio. And if its value declines, you may end up with less retirement income at your disposal than expected. That could force you to have to make difficult choices, like going back to work, cutting back on leisure spending, or even relocating to a different part of the country.
Claiming Social Security strategically, however, could make you less reliant on your portfolio. But to snag a higher Social Security benefit, you can't file at age 62.
See, you're entitled to your full monthly Social Security benefit based on your personal wage history at full retirement age, or FRA. That age is either 66, 67, or somewhere in between, depending on when you were born.
If you sign up for Social Security at age 62, which is the earliest age to start receiving benefits, your payments will be 25% to 30% lower than what they would've been at FRA (the exact percentage will hinge on your exact FRA). And that could leave you in a tough financial position if your portfolio happens to take a hit.
Let's say you can get $2,000 a month from Social Security at FRA, only you file at age 62 instead and whittle that benefit down to $1,400. If your portfolio value drops to the point where you need to withdraw $600 less per month from your savings until things stabilize, you'll have that much more trouble paying your bills. With a monthly Social Security benefit that's $600 higher, you get more leeway.
Patience pays off
You can boost your monthly Social Security benefits by 8% for each year you delay your filing beyond FRA, up until age 70. Now you may not want to go that route and wait so long for your money. But waiting until FRA arrives is a more reasonable bet.
Even if you can't do that, it pays to push yourself to wait on claiming Social Security beyond age 62. Doing so could give you a lot more financial flexibility at a time that you're apt to need it.
