The nice thing about Social Security is that seniors get a choice as to when to sign up. Eligibility for Social Security begins at 62. But if you don't need your money right away, you can wait until full retirement age (FRA) arrives to claim benefits so you can avoid a reduction. And if you're able to delay your filing beyond FRA, you'll get to boost your monthly benefits for life.
Many people, however, rush to claim Social Security as soon as they're able to at age 62. That way, they can get their money right away and start putting it to good use. Some people even file for Social Security at 62 so that they can kick off retirement early.
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A filing at 62 might seem like an optimal choice for you. But you might end up sorely regretting that decision for one big reason.
When your savings start to run out
Some people manage to enter retirement with millions of dollars in savings. If you have a $3 million or $4 million nest egg and you manage your withdrawals carefully, you may find that you have more than enough money to live comfortably throughout retirement. In that case, a Social Security claim at age 62 may not be a poor choice.
But many people start off retirement with far less money in savings. Recent Federal Reserve data found that the average retirement account has a balance of $334,000 in 2022.
To be fair, a balance of $334,000 at age 40 or 45 could grow to a balance of several million dollars over the course of 20 to 25 years. The point, however, is that a lot of people don't have millions of dollars sitting in an IRA or 401(k) plan. Some people have very little in the way of savings. And if you're someone with minimal or even modest savings, an early Social Security filing may not be the best choice.
While it's possible to end up spending down your nest egg prematurely with millions of dollars to your name, it's generally more likely to happen if you're starting out with less money. But a higher monthly Social Security benefit could come to your rescue if you end up depleting your cash reserves midway through retirement.
That's why you need to think carefully before rushing to claim benefits at 62. The idea of having that money early might seem appealing. But if you're able to hold off, you'll get to enjoy a higher monthly benefit for life. That could really be crucial, should your savings run out.
Try to wait at least a few years
If you're in a miserable job or career and can't see yourself waiting until FRA to file for Social Security and retire, you may be tempted to claim benefits at 62 because, well, you can. But remember, even if you don't feel you can sit tight until FRA, you can still benefit financially by holding off on Social Security for a few more years. Claiming benefits at 64 or 65 will mean taking less of a hit than filing at 62.
All told, there's no guarantee that your retirement savings will last as long as you need them to -- no matter what size your nest egg is. Claiming Social Security at 62 will mean accepting the lowest monthly benefit you're eligible for. That's a decision you might bemoan if your savings start disappearing before your eyes, so consider it carefully before making it official.
