Many seniors sign up for Social Security as soon as they become eligible at 62, but you may have heard that doing so usually isn't a good idea. That's not always true, though.
Sometimes claiming Social Security at 62 really can cost you a fortune, but other times, it's actually your best option. Here's what you need to know to figure out if it's a smart move for you.
Image source: Getty Images.
What happens when you claim Social Security at 62?
The reason some people say it's bad to claim Social Security at 62 is because doing so will reduce your monthly checks. How much you'll lose depends in part on when you were born.
The Social Security Administration assigns everyone a full retirement age (FRA) based on their birth year. Here's a table to help you find yours:
|
Birth Year |
Full Retirement Age (FRA) |
|---|---|
|
1943 to 1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 and later |
67 |
Data source: Social Security Administration.
Every month that you claim benefits below your FRA reduces your checks. You'll lose:
- 5/9 of 1% per month for claiming below your FRA up to 36 months.
- An additional 5/12 of 1% per month if you claim benefits more than 36 months before your FRA.
If you sign up right away at 62, you could shrink your checks by 25% if your FRA is 66 or 30% if your FRA is 67.
To illustrate what kind of a difference that makes, let's look at the average benefit of $1,563 per month. If you qualified for this at your FRA of 66 and signed up for Social Security at 62, you'd only get $1,172 per month. If your FRA was 67 and you claimed at 62, you'd only get $1,094 per month.
Some people choose to delay Social Security benefits to avoid these penalties, and a few even go above and beyond. If you continue to delay benefits past your FRA, your checks will grow by 2/3 of 1% per month until you reach 70. This is when you qualify for your maximum benefit. It's 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66.
For some people, delaying benefits like this is the best way to get the most out of Social Security, but that's not always the case. Sometimes, starting Social Security at 62 is a better choice.
It all depends on your life expectancy and finances
Starting Social Security at 62 tends to cost you in the long run if you live into your mid-80s or beyond. Though you receive more checks, the ones you get are smaller. Over time, those who receive fewer, but larger, checks end up with a larger lifetime benefit.
But if you don't live that long, you might get more out of the program by starting early. Those who have a serious health condition and don't believe they'll make it to their FRA or 70 have no incentive to delay benefits because there's a chance they miss out on Social Security altogether if they do. Even those who expect to live until sometime in their 70s tend to get more out of Social Security by starting early.
And sometimes, signing up right away isn't a choice. If you have bills that need paying and don't have a large nest egg, you might need to sign up for Social Security early to cover your expenses. That could mean getting less out of the program over your lifetime, but it's better than winding up with debts you can't pay.
Ultimately, it comes down to what your goals are and what you're most comfortable with. Think through all your options before you sign up, and understand how that will influence how much you need to save on your own for retirement. If you decide 62 is your best option, then go ahead and sign up right away.
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