Social Security's earliest eligibility age -- 62 -- remains one of its most popular claiming ages, but every year, fewer people choose to sign up right away. This is likely because the Social Security Administration (SSA) reduces your monthly checks when you claim before you reach your full retirement age (FRA). That's somewhere between 66 and 67, depending on your birth year.
That doesn't mean claiming early is always the wrong decision, but there are times when it may not be in your best interest. If any of the following three things apply to you, consider delaying your Social Security application for a little while.
Image source: Getty Images.
1. You expect to live a long life
As mentioned above, the SSA will reduce your Social Security check by anywhere from 5/12 of 1% to 5/9 of 1% per month for every month you claim benefits before you reach FRA. Those who apply for Social Security at 62 will therefore only get 70% of their full benefit per check if their FRA is 67, or 75% if it's 66.
For those who live beyond age 70, this will often lead to a reduced lifetime benefit. For example, if you qualify for a $2,000 monthly benefit at your FRA of 67, you'd only get a $1,400 benefit if you applied at 62. If you lived until 87, you'd receive about $420,000 from Social Security over your lifetime had you claimed at 62. But if you'd waited until 67 to apply, your lifetime benefit would be $480,000.
Things don't always work out this way for those with shorter life expectancies, though. If you don't expect to live beyond your 70s, you'll probably receive more money overall by applying right away. If you put off claiming too long, you run the risk of missing out on benefits altogether.
2. You haven't worked for at least 35 years
The SSA bases your Social Security benefit on your average monthly earnings over your 35 highest-earning years. You only need 10 years of work history to qualify for benefits, but it's best to put in at least 35 years in the workforce if you're able to do so.
When you apply for benefits and have a shorter work history, the SSA will add zero-income years to your benefit calculation. These will reduce the size of your checks. Even one of these zeros can knock a few dollars off your monthly benefit, and that can add up to thousands of dollars less over your lifetime.
If you claim benefits at 62, you're compounding your losses because you'll have a reduced full benefit, due to your work history. Then the Social Security Administration will shave even more off to account for the extra months you receive checks under your FRA.
Remaining in the workforce until you've put in at least 35 years is best if you're able to do so. There's no harm in working longer, either. People often earn more later in their careers than they did when they first entered the workforce. Working more than 35 years generally pushes the earlier, lower-earning years out of your benefit calculation and replaces them with newer, higher-earning years, leading to larger checks.
3. You don't need the money right away
Claiming Social Security at 62 is sometimes necessary if you have no other means of paying for your living expenses. But when you can afford to delay benefits, it's often advantageous to do so, assuming you aren't concerned about a short life expectancy.
Delaying benefits will help you avoid the benefit reduction the Social Security Administration applies to early claimers. It can also help you accumulate delayed retirement credits. Your checks will grow by 2/3 of 1% per month for every month you wait beyond your FRA.
This maxes out at 70, at which point, you'll qualify for 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66. In the previous example of a $2,000 monthly benefit at an FRA of 67, you could grow your checks by an additional $480 per month by waiting until 70 to apply. Again, you'll have to decide if this move makes sense for you, based on your finances and life expectancy, but it's an option to consider.
You may decide to proceed with claiming at 62, anyway, and that's OK. It can be the right move for some. Just make sure you understand the consequences of doing so and be prepared to adapt your claiming strategy if your plans for retirement or the laws regarding Social Security change.
