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3 Reasons It's Dumb to Take Social Security Benefits at 62

By Maurie Backman - Apr 24, 2016 at 6:02AM

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Don't make the mistake of claiming early. It could come back to haunt you.

These days, 62 is the most popular age for eligible recipients to start taking Social Security, and the reason is pretty obvious: It's the earliest possible age at which you can begin to collect. But while taking those benefits as soon as possible might seem like a good idea in theory, you may be better off waiting. Here are three big reasons why.

1. You'll reduce your monthly benefit -- forever
Though claiming your Social Security benefits as early as possible does give you access to cash sooner, it also reduces the amount you get each month. And that reduction lasts for as long as you continue to collect Social Security, which means until you die. Taking benefits at 62 when your full retirement age is 67 means reducing your Social Security income by a good 30%, and over the course of a lifetime, that could really add up. Imagine you can get $1,500 a month by claiming benefits at 67 versus $1,050 a month by doing so at 62. If you live to age 85, you'll be shortchanging yourself by about $34,000 in lifetime benefits by claiming Social Security at 62.

Keep in mind that Social Security is designed to pay retirees roughly the same lifetime benefit regardless of when they initially begin to claim. In our example, the breakeven age for collecting benefits is about 78 -- meaning that at age 78, you would have collected the same cumulative benefits whether you claimed them at 62 or 67. However, Social Security's formulas are based on life expectancies, which vary based on your age. Among Americans who have already reached the age of 62, the average man will live to age 80, while the average woman will live another few years to 83.

If you don't expect to live past your breakeven age, then it makes sense to claim your benefits early. But if you think you stand a good chance of living longer, then it pays to wait.

2. You'll reduce your survivors' benefits, too
When you claim Social Security early, it's not just your own benefits that are affected; your survivors' benefits are affected, too. And the lower your monthly benefit amount, the lower the survivor benefits you'll leave behind. Say you pass away and leave your wife as your survivor. At her full retirement age, she'd be eligible to collect 100% of your benefit amount. But the lower that amount is, the less money she'll get.

You may be tempted to take Social Security early if you're in poor health -- the logic being that if you're not around to collect those monthly checks for the long haul, then it's better to start sooner rather than later. However, before you pull the trigger, consider the health of your spouse as well. He or she might outlive you by several decades, in which case starting with a lower benefit amount could put your loved one at a serious financial disadvantage.

3. You'll be even less likely to keep up with inflation
When you're living on a fixed income, inflation can be your worst nightmare, and while Social Security is designed to keep up with inflation, it doesn't always do such a great job. Though Congress enacted a provision back in 1972 allowing for automatic annual cost-of-living adjustments, or COLAs, they generally aren't substantial enough to help those who rely on Social Security retain their purchasing power in the face of rising living expenses. COLAs are based on the Consumer Price Index, which is only a limited measure of price changes in consumer goods over time.

Over the past 10 years, COLAs have only averaged about 2%, and beneficiaries didn't get a boost at all for 2016. Furthermore, though COLAs have increased Social Security benefits by 41% since 2000, senior living expenses have climbed an estimated 84%, which means many beneficiaries are struggling despite having seen their benefits go up. What this means is that the lower your starting benefit amount, the less likely you are to keep pace with inflation.

Of course, if you're truly desperate for cash, then taking Social Security at 62 might be your best move. Another good reason to take Social Security early? You have ample savings and you don't need the money whatsoever, but you want extra income to travel and pursue hobbies while you're still in good enough health to enjoy them the most. Otherwise, you're better off waiting to collect those benefits until you're eligible to receive them in full. Holding off on benefits might even mean postponing retirement and working an extra year or two, but that's a small price to pay for extra financial security that'll last the rest of your lifetime.

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