There's a reason Social Security filers are often encouraged not to claim their benefits before full retirement age (FRA) arrives: Doing so means potentially getting stuck with a lower monthly benefit for life.
FRA kicks in at age 66, 67, or somewhere in between, depending on your year of birth. But you're allowed to claim Social Security as early as age 62.
Now the earlier you file for Social Security, the more of a reduction in benefits you'll face, so that a claim at age 62 will have more of an impact than a claim at age 65. But even filing a month ahead of FRA will slash your benefits to some degree.
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Of course, it's easy to see why claiming benefits early isn't the best idea. But in certain situations, it's a move that could work out well. In fact, filing for Social Security ahead of FRA could actually make you wealthier throughout retirement than you'd be after holding out for a larger monthly benefit.
When you file early and invest in a lucrative venture
Many people reach their early 60s feeling that they're not quite ready to stop working, but that they're tired of working in the field they've plugged away at for decades. In fact, many retirees start small businesses so they can stay busy, earn an income, and pursue passions they couldn't focus on earlier in life because they needed those steady paychecks.
If you're interested in starting a business that you maintain as a retiree, then filing for Social Security ahead of FRA could give you the money needed to get that venture off the ground. And if your business is successful enough, it could provide enough income to more than make up for the reduction in benefits you face by claiming Social Security early.
In fact, let's say you slash a $2,000 monthly Social Security benefit by $600 by claiming it at age 62 instead of an FRA of 67. If you live until age 90, that means you've lost $81,600 in lifetime Social Security income by filing for benefits early.
But what if you use that money to invest in a business that yields you $300,000 in the course of your retirement? Suddenly, that doesn't sound like such a bad deal.
Plus, there are benefits to running a successful business in retirement other than just boosting your senior income. For one thing, overseeing a business is a good way to stay busy and engaged. It might also mean getting to interact with people, such as vendors, customers, and employees, which could be a good thing socially.
Many retirees end up feeling isolated and lonely after wrapping up their careers and exiting the labor force. Running a business might help you avoid that fate.
All told, filing for Social Security early has its risks. But if you're claiming benefits early for the express purpose of being able to start a business and embark on a second career of sorts, then signing up ahead of FRA may not be such a bad idea after all.
