If you're turning 62 this year, you might be excited about claiming Social Security soon. It's a big milestone, but it's also one you have to take seriously. Your decision about when to claim affects your benefit checks for the rest of your life -- and claiming at 62 could come back to haunt you.
Let's take a look at why and how to decide on the best claiming age for you.
What's wrong with claiming Social Security at 62?
There's no "wrong" age to claim Social Security, but some ages pay you more than others. You become eligible for benefits at 62, but signing up then is actually considered early claiming. The government reduces the amount of your checks when you do this.
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If you'd like to avoid benefit reduction, you must wait until your full retirement age (FRA) -- 66 to 67 for today's workers -- to apply. Those who apply earlier lose five-ninths of 1% per month for up to 36 months of early claiming. Those who apply more than 36 months before their FRA lose an additional five-twelfths of 1% per month.
Claiming at 62 results in benefit reductions of 25% for those with FRAs of 66, and 30% for those with FRAs of 67. To put this in perspective, if you qualified for the average benefit of $1,907 per month at your FRA of 67, you'd only get about $1,335 per month by claiming as soon as you turned 62. That's $572 less per month, adding up to $6,864 per year.
Of course, if you start early, you're also getting more checks. This can be the smarter play for those with shorter life expectancies and those who can't afford to cover their essential expenses without Social Security checks.
But those with longer life expectancies who can cover their living expenses another way often gain more over their lifetimes by delaying benefits. For every month you delay Social Security, you increase your checks -- and this doesn't stop at your FRA. Benefits continue to grow past your FRA by two-thirds of 1% per month until you reach 70. Age 70 is when you qualify for your maximum benefit of 124% of your full benefit amount if your FRA is 67, or 132% if your FRA is 66.
When's the best time to apply?
As mentioned, you need to consider your financial situation when deciding when to apply for Social Security. If you can't get by without help, you may have to sign up early, even if it means settling for a smaller lifetime benefit.
If that's not the case, the ideal claiming age depends on your life expectancy. Those who expect to live long lives typically receive more by applying later, while those expecting short life expectancies may prefer to sign up earlier.
You can create a my Social Security account and use the calculator tool to estimate your monthly benefit at various claiming ages based on your work history to date. Choose a few ages you're considering and multiply their monthly benefits by 12 to get your estimated annual benefits. Then, multiply these by the number of years you expect to claim.
For example, if you expect to claim a $2,000 monthly benefit for 20 years, that would give you a lifetime benefit of $480,000. Whenever possible, go with the claiming age that will give you the largest lifetime benefit overall.
There's nothing wrong with claiming at 62 if you feel that's the best decision for you. Just make sure you consider all your options first. And don't be afraid to adjust your Social Security claiming strategy over time if your plans for retirement change.
