Social Security is a complex program, primarily because it doles out benefits each month to over 74.5 million Americans. The other complex part of the program is that retirees can choose to start claiming Social Security benefits at different ages. Retirees can claim benefits as early as age 62 and as late as age 70. There are, of course, different reasons to claim benefits at different ages and different trade-offs as well. While there is no right answer for when to claim benefits, this is the No. 1 reason to claim at age 62.
Understanding the trade-offs
Social Security's goal is to ensure that, regardless of the age at which retirees claim benefits, they will theoretically get an equal amount of benefits over their lifetime. Retirees who claim benefits earlier will see reduced benefits because they are theoretically expected to claim benefits over a longer period. Retirees who claim benefits later will get higher benefits because they will likely get to use them for fewer years than those who claimed at age 62.
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The first thing retirees need to figure out is their full retirement age (FRA), which is the age at which retirees can claim the full amount of benefits they're entitled to based on the Social Security Administration's formula, which is based on several factors, including the number of years a retiree worked and their career earnings.
A retiree's FRA is either going to be age 66 or 67, based on the year they were born. For those born prior to 1960, their FRA will happen at some point during their 66th year. For instance, a retiree born in 1955 will hit their FRA at 66 and two months, while a retiree born in 1959 will hit their FRA at 66 and 10 months. For everyone born in 1960 or after, their FRA is age 67.
A retiree's total benefits are reduced by a certain amount for each month the retiree claims benefits prior to their FRA. Retirees who choose to claim Social Security at age 62 (who were born in 1960 or after) will likely see their benefits reduced by as much as 30%. On the other hand, retirees who delay benefits will see them increase by a certain amount for each month delayed up until age 70, the latest age at which retirees can start claiming benefits. Retirees who wait all the way until age 70 will see their benefits increased by 24%.
The big reason to claim benefits at 62
I want to reiterate that there is no right age to claim benefits. But many people might be wondering why anyone would claim benefits early if they have to take such a haircut.
Well, the most obvious answer is that retirees need the money. If you're someone who doesn't have a ton of savings and may struggle more to cover daily expenses, then it makes sense to take the benefits as soon as possible. Another reason could have to do with your health. Not only can health issues increase your daily expenses significantly, but they may also decrease life expectancy. There's no point waiting to claim benefits if you need them right away.
And people shouldn't feel unique if they need to claim benefits early, because the SSA's own data shows that many people rely on Social Security as a primary or at least a supplementary source of income in retirement. In recent years, a large number of people have claimed Social Security at age 62.
If you're reasonably healthy at age 62, have significant savings, and don't need the money, then waiting as long as possible to claim makes sense. Everyone's situation is different. The goal is to assess your individual situation and do what's best for you.
