The amount of money you get from Social Security each month will hinge on your personal wage history. The program doesn't pay a single, universal benefit; it calculates payouts individually based on your earnings during your 35 highest-paid years in the labor force.
But your age when you first file for those benefits will also determine how much you get from Social Security each month. And if you sit tight until full retirement age (FRA), which is 67 if you were born in 1960 or later, then you'll be entitled to your complete monthly benefit based on your earnings history.
The Social Security Administration (SSA) allows seniors to start receiving benefits at age 62, albeit at a reduced level. And at first, the idea of filing for benefits that early could seem appealing.
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If you sign up for benefits at 62, it might allow you to cut your career short by a few years. It might also allow you to do things like travel when you still have the energy for it.
But while it's easy to see why you might want to claim Social Security at 62, doing so could mess up your retirement in a very big way later on.
What happens if your money runs out?
Ideally, you'll be coming into retirement with a nest egg you've worked hard to build. Maybe that nest egg will be worth $500,000. Maybe it'll be worth $1 million.
Either way, there's unfortunately no guarantee that your money is going to last as long as you need it to. You can mitigate the risk of running out of savings by doing things like withdrawing from your nest egg conservatively. But even so, you never know when an underperforming market might cause that money to dwindle more rapidly than expected.
Another thing that might happen is that you simply end up living a lot longer than anticipated. You might assume you'll hang in there until your late 80s because that's what your family history seems to dictate. But what if you're that person who's still kicking at 101? That's obviously a good thing, but financially, it can pose a challenge because you might be out of savings by then.
That's why it's worth considering a later Social Security filing rather than an earlier one. If you claim benefits at 62 and slash them in the process, you'll have less income to fall back on if your savings happen to run out. That would leave you in a position of having to cut back on spending at a time in life when that's not easy to do.
Try to sit tight until FRA
For each year you delay your Social Security filing past FRA, your monthly benefit gets to grow by 8%, up until age 70. So if you're able to wait until your 70th birthday to collect benefits, you'll buy yourself that much more financial protection.
But waiting until 70 to get your benefits might not be reasonable if you've always planned on retiring earlier. If that's the case, a good compromise is to hold off on taking benefits until FRA arrives. You won't snag a higher monthly benefit at that point, but you also won't reduce your Social Security income as you would at 62.
And given that you don't know how long your savings will last or how long you'll live, that's a good thing.
