Sorry to Say: Claiming Social Security at 62 Could Leave Your Retirement Lacking

Although full retirement age (FRA) is 67 for workers born in 1960 or later, Social Security can be started as early as 62. But doing so can have some major financial consequences, and it's important to know what to expect.

Your Social Security benefit is based on a process that takes your annual earnings from your entire lifetime, adjusts them for inflation, and then considers your 35 highest-earning years. Your average monthly income for these 35 years is then applied to the current Social Security benefit formula that determines your initial monthly benefit.

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However, this calculation method determines your initial Social Security benefit if you decide to start claiming at exactly your full retirement age. As mentioned earlier, FRA for people born in 1960 or later is 67 and slightly lower for people born in earlier years, as seen in this table.

Data source: Social Security Administration.

Americans who qualify can start collecting Social Security as early as age 62 and as late as age 70. But if you claim your benefits before you reach FRA, it can be costly.

The impact of claiming Social Security early

Sixty-two is a very common age to start collecting Social Security, even though it is significantly before the full retirement age for every beneficiary. And to be fair, there can be some good reasons to claim Social Security early. For example, if you were forced to stop working sooner than planned, it can make good financial sense to start those monthly payments as soon as possible.

However, it's important to weigh the pros and cons when claiming Social Security early. The pros are obvious: You get as much as five years' worth of additional monthly checks compared with claiming at FRA. But your benefit will be permanently reduced.

If you claim Social Security before FRA, the following reduction rules apply:

• 67% reduction for each year before FRA, up to three years.
• 5% reduction for each year early beyond three years.

Plus, these are prorated monthly, meaning that if you claim Social Security six months before FRA, it would be reduced by half of the annual amount.

The short answer is that if you claim Social Security at 62 and your FRA is 67, your benefit will be permanently reduced by 30% from what it would have been if you waited. So, if you are entitled to a $2,000 monthly benefit based on your work record, claiming at 62 would reduce it to $1,400.

Of course, this is a simplified example, and your actual reduction would depend on certain other factors as well, such as whether you're still working when you claim benefits. But the takeaway is that it can be a large reduction. And it's a permanent reduction. You'll get cost-of-living adjustments (COLAs) over time, but your benefit will always be 30% less than it would have been had you waited until full retirement age.

The bottom line

Social Security is designed so the average beneficiary receives roughly the same amount of inflation-adjusted income throughout their life regardless of when they claim. The 30% reduction in benefits is designed to offset the five additional years of income you'll receive if you claim at 62.

As mentioned, there can be some good reasons to apply for Social Security as early as possible. Just be sure you fully understand what it means for your retirement income before you decide to apply.