One nice feature of Social Security is getting to choose what age you sign up at. You can file for Social Security as early as age 62. But to get your full monthly benefit, you'll have to sit tight until full retirement age arrives.
Full retirement age depends on your year of birth. If you were born in 1960 or later, it's 67.
Image source: Getty Images.
You can also delay Social Security past full retirement age and set yourself up with larger monthly checks in the process. For each month you delay your claim past that point, your monthly benefit increases by 2/3 of 1%, up until age 70.
By contrast, if you claim Social Security at 62 with a full retirement age of 67, you're looking at about a 30% reduction in your monthly payments. And that might seem like a hard pill to swallow. But here's why it might pay to claim Social Security at 62 despite the financial hit.
What you might lose in income, you can gain in peace of mind
There's a risk in not signing up for Social Security as soon as you can. You never know how long you'll end up living. And if you happen to pass away at a relatively young age, you'll potentially risk losing out on lifetime income by virtue of not claiming Social Security at 62.
Say you're entitled to a monthly benefit of $2,000 at age 67. Filing for Social Security at 62 means getting $1,400 a month instead. And delaying your claim until 70 means getting a monthly check worth $2,480.
But watch what happens if you pass away at age 75. If you start collecting Social Security at 62, at that point, you'll have received a total of $218,400 in benefits.
If you claim Social Security at 67 and pass away at 75, your lifetime benefit is only $192,000. And if you wait until 70, you're looking at a lifetime Social Security payout of just $148,800.
Now if your health is strong going into retirement, there's no reason to assume you'll pass away in your mid-70s. But you also just never know. And if you'd rather not run the risk of shorting yourself on Social Security income, then you may want to file for benefits at 62, even if it means accepting a smaller monthly check for life.
Take your financial situation into account, too
Of course, there's another factor to think about in all of this -- your personal savings. If you haven't saved a lot, then claiming Social Security at 62 becomes riskier. If you end up living longer than expected, you might need a larger monthly benefit to make up for the smaller withdrawals you'll have to take from your 401(k) or IRA.
But let's assume you've saved pretty well for retirement -- maybe not enough to buy a yacht, but enough to live comfortably. In that case, you may want to tell yourself you'll file for Social Security as early as possible to mitigate the above-mentioned risk, and also because collecting a smaller benefit each month won't hurt you financially.
Deciding when to claim Social Security is not an easy thing. But as you go about making that decision, don't just think about how much money you'll get each month based on your filing age. Also consider the impact on your lifetime income. And if you think getting those benefits as early as possible will bring you more peace of mind, then that might be reason enough to put in your claim at 62.
