The decision to claim Social Security is not an easy one. Though your monthly benefits are calculated based on your personal earnings history, your filing age also plays a big role in determining how much money you get each month.
A lot of seniors are tempted to file for benefits as early as possible. But if you make that decision without thinking things through, it could end up costing you in the long run.
Image source: Getty Images.
The problem with claiming Social Security early
Age 62 is the earliest age you can file for Social Security. But you won't get your monthly benefits in full until age 67, which is full retirement age, if you were born in 1960 or later.
It can be tempting to claim your benefits as soon as they become available to you. But realize that filing early doesn't just result in a temporary reduction in your Social Security checks. Rather, that reduction is permanent. And it also trickles down to smaller raises over time.
Each year, Social Security benefits are eligible for a cost-of-living adjustment, or COLA, so they're able to keep up with inflation. If you reduce your benefits by filing early, your COLAs, in turn, will also be smaller.
Here's an example to illustrate the danger of filing early. Let's say you're eligible for $2,000 a month in Social Security at a full retirement age of 67. If you file at 62, you'll get $1,400 a month instead.
Now, let's say Social Security benefits get a 3% COLA. If you're starting with a $2,000 monthly benefit, that COLA is worth $60. If you're starting with a $1,400 benefit, that COLA is only worth $42.
But when you compound the effect of COLAs over what could be a 20- or 30-year retirement, the impact is a lot more significant. So there's a real danger in claiming Social Security early unless you have a good reason to.
If you're going to file early, make sure it makes sense
Claiming Social Security early isn't always a mistake. But if you're going to file for benefits ahead of full retirement age, make sure you have a good reason to.
Some great reasons to take benefits early include:
- Losing your job and needing those benefits to get by
- Having poor health and therefore wanting to file early to increase your lifetime benefit
- Having loads of retirement savings and wanting the money early to maximize strong health
But if you file for Social Security early simply because you can, you might regret it later -- especially if it results in much smaller checks year after year.
