Most people have dreams for their retirement. And whether you're hoping to travel, cook, or spoil your grandkids, pursuing a lot of those dreams will require money.
If you're like most people, there's a good chance a large portion of the funds you will need to enjoy your later years is going to come from Social Security retirement benefits. That's why claiming these benefits at 62 could be a big mistake. Here's why.
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Claiming at 62 means you'll see a lot less cash
Social Security retirement benefits first become available at 62, so it may be tempting to start getting checks right away so you can give up work for good and start enjoying life. But filing for benefits so early could leave your retirement lacking because you'll shrink your payments substantially if you do.
The Social Security Administration allows you to begin receiving your retirement benefits any time between the ages of 62 and 70, but the program's rules were set with the goal of equalizing the amount of lifetime income retirees receive no matter when they start getting payments. The way this is done is by penalizing early claimants and reducing their check amount and by increasing the monthly income that late filers receive.
Retirees have all been assigned a "full retirement age," and will receive a standard benefit if they file for Social Security at exactly that time. The age of 62 is well before that full retirement age. In fact, it's five years before the full retirement age of 67, which applies to anyone born in 1960 or later.
If you claim Social Security five years early, you will be hit with the maximum penalties that apply to early filers. In fact, you will reduce your standard benefit by a whopping 30%. So, if you were on track to get $1,500 a month at 67, you would end up with just $1,050 if you claimed benefits at 62. You would pass up $450 of monthly income every single month due to early filing. That's a lot of money that you can't use to live out your retirement dreams, and your retirement will be poorer because of it.
Now, it is true you do get your money years earlier by claiming at 62 rather than waiting. But since Social Security's system of penalties and credits was created when life expectancies were lower, many people end up better off delaying benefits and earning the extra monthly money. When they outlive their projected life expectancy, they keep getting their bigger payments and wind up with more lifetime Social Security income.
Should you delay your Social Security claim?
If you want the most money each month to enjoy retirement -- and you hope to maximize your chances of getting the most lifetime Social Security income -- a delayed benefits claim is a no-brainer. If you don't want to wait to retire, you can always opt to save enough to live on without Social Security until you've reached at least your full retirement age.
This strategy could pay off for you big time when you have many years of big Social Security benefits that you can use to truly enjoy your later years.
