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Monday, August 15, 2022

Sorry to Say: You Probably Shouldn’t Claim Social Security at 62

When you reach age 62, you hit an important milestone: You can start collecting your Social Security retirement benefits.

Unfortunately, just because you can file for your checks doesn’t necessarily mean you should. In fact, chances are good claiming at 62 would be the wrong financial move for you. Here are a few reasons why. 

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You’ll permanently shrink your benefit

Age 62 is well before your full retirement age (FRA). Depending on your birth year, your FRA is between 66 and 2 months and 67. Unfortunately, for each month you claim your benefit ahead of your FRA, you’re subject to an early filing penalty that shrinks your Social Security check. 

The monthly penalties can add up quickly if you’ve claimed at 62, which is at least four years and two months before FRA. You’ll see a 6.7% annual reduction in benefits for each of the first three years you’re early and another 5% for each year prior. If you have a full retirement age of 67 and claim at 62, your checks will be a whopping 30% smaller than if you’d waited. 

You’ll get smaller dollar increases from your COLAs

Retirement benefits from Social Security are protected against inflation thanks to cost of living adjustments (COLAs). These are calculated on a percentage basis, such as a 1% annual raise.

That means if you’ve reduced the starting size of your monthly check by claiming benefits at 62, every single raise going forward will be smaller in dollar terms. You’ll never catch back up to where you would have been if you had waited to start your benefits until later. 

You’ll probably get less lifetime income

In some cases, claiming benefits early pays off, like if you pass away before the end of your projected life expectancy. But many people are living much longer now than they did when Social Security was initially designed. The result is that around 6 in 10 retirees end up with more lifetime benefits if they delay claiming their checks until age 70. 

While starting Social Security at 62 means you get payments years sooner, you could end up really regretting shrinking the size of your checks if you get tens of thousands of dollars less income over the course of your retirement. That’s especially true if your savings start to run dry late in your life and you’re struggling to survive on a reduced Social Security benefit.

You could leave your spouse in dire straits 

If you are the higher-earning spouse, claiming Social Security at 62 could be detrimental to your husband or wife’s financial security after you pass away.

See, your spouse is entitled to survivor benefits when you die. Unfortunately, if you’ve reduced your benefit by claiming it early, the monthly survivor benefit check is smaller.

Since chances are good your household budget is based around both partners receiving Social Security income, the death of a spouse is almost always a huge financial shock. Leaving your spouse with a reduced survivor benefit due to claiming Social Security at 62 could only exacerbate the financial struggles they face. 

So, unless you’re OK with leaving less for a spouse, getting smaller checks for life, and likely getting less lifetime income than you otherwise could, claiming Social Security at 62 is probably not the smartest financial move. Be sure to consider all of these downsides before you decide to pull the trigger and file for benefits — even if getting checks in the mail seems like an attractive proposition at first glance.

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