One of the toughest decisions you might have to make as a senior is when to sign up for Social Security. You're allowed to claim your benefits at any age starting at 62. But you won't get your complete monthly benefit based on your individual earnings history until you reach full retirement age (FRA). That age is either 66, 67, or somewhere in between, depending on the year you were born.
You may be inclined to sign up for Social Security as soon as you're able to do so. But while claiming benefits at 62 could work to your advantage, it could also backfire on you in a very big way.
Image source: Getty Images.
The upside of claiming Social Security at 62
Filing for Social Security at 62 could help you in several regards. First, if your job is extremely stressful or physical and therefore bad for your health, a Social Security claim at 62 could help you bust out of that unfavorable situation sooner.
Also, the money you collect from Social Security doesn't have to be money you spend. If you're a shrewd stock picker, you might manage to invest your benefits in a manner that more than makes up for the hit that comes with an early filing.
Furthermore, if you're someone who's looking to start a business in retirement, you may have more energy to do all the hard work at 62 than a later age. And so if you use your benefits as seed money, you may find that just a few years later, you have a nice, steady income stream to fall back on.
Finally, if your health is poor in your early 60s, claiming Social Security at 62 may be a logical choice, financially speaking. If you don't end up living a very long life, you could come away with a higher lifetime benefit from Social Security by signing up as early as possible.
But there's a risk
The drawback of claiming Social Security at 62 is obvious: You'll get less money from the program on a monthly basis. And that's a scary thing, because unlike your savings, which have the potential to run out on you, Social Security is designed to pay you your monthly benefit for life. So if you slash that income stream, you might regret it in your 80s or 90s if your 401(k) or IRA is out of money.
Also, filing for Social Security at 62 might give you a larger lifetime benefit if you pass away in your early or mid-70s. But if you live well into your 90s, an early filing will result in less lifetime income from the program.
Weighing your options
All told, claiming Social Security at 62 could work out very well for you -- or backfire miserably. So think about your personal circumstances before making your decision, and focus on factors such as:
- Your job status and what your work entails
- Your savings level
- Your health
- What you intend to do with the money
If you take the time to consider your options carefully, you're more likely to land on the right decision.
