There's a big reason so many seniors rush to claim Social Security at age 62. That's the earliest age you're allowed to sign up for those monthly benefits.
You may be convinced that age 62 is the right age for you to file for Social Security. But before you do, make certain you're aware of these key points.
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1. What your reduced monthly benefit will amount to
You're entitled to your complete monthly Social Security benefit based on your individual wage history once you reach full retirement age, or FRA. FRA is either 66, 67, or somewhere in between, depending on your year of birth.
For each month you file for Social Security ahead of FRA, your benefit gets reduced. And it's important to know exactly how large a reduction you're looking at.
As an example, if you have a FRA of 67, filing for Social Security at 62 will mean slashing your monthly benefit by 30%. So if you'd normally be entitled to $2,000 a month, you'll instead leave yourself to collect $1,400 instead.
It may be that you have plenty of money saved for retirement, and that you can afford a hit to your monthly benefit. In that case, if you want your money sooner, so be it. But if you don't happen to have a particularly large nest egg, then filing for Social Security at age 62 could be a dangerous move -- namely, because it could end up leaving you cash-strapped for many years.
2. What your break-even age is
When you consider the financial consequences of claiming Social Security at age 62, it's important to look beyond the hit to your monthly benefit. You'll also want to consider the effect on your lifetime benefit. To that end, it helps to calculate your break-even age.
In our example of filing for Social Security at 62 versus 67, your break-even age is roughly 78 1/2. What this means is that if you live past that point, you'll come out ahead financially by virtue of waiting until age 67 to claim your benefits.
In fact, let's say you end up living until age 85. In that case, claiming Social Security at age 62 will result in $45,600 less lifetime income from the program.
You may be willing to forgo some lifetime income to get your money sooner. But you should know what you're potentially giving up.
3. What your options are for undoing your filing
You may have heard that you're allowed to undo your Social Security filing if you end up regretting your decision, and that's true. But there are some restrictive rules you'll need to keep in mind.
First, you have to undo your filing within a year. You'll also have to repay all of the money you received from Social Security to be able to file for benefits again at a later age. So if you're keeping the do-over option in the back of your mind as part of your plan to file at 62, know these rules so that option remains on the table.
There are plenty of situations where claiming Social Security at 62 works out just fine. So if you decide to move forward with a filing at 62, you may find that it ends up being the right choice. But it's important to be aware of these rules before making your decision.
