If you’re turning 62 soon, you’re probably excited to be eligible for Social Security checks. The earliest age you can claim them is 62, and that’s a popular age to start receiving payments because many people need their benefits for retirement and want to leave their jobs as soon as possible.
Unfortunately, if you’re anticipating starting Social Security at the earliest possible age of eligibility, you’ll want to carefully consider the downsides. That’s because the reality is that starting benefits at age 62 probably isn’t the right choice for most people for a few key reasons.
1. It will reduce benefits that may already be too small
The decision to undertake Social Security checks at 62 It will have profound long-term financial consequences because it reduces your monthly payment by up to 30%. The benefits are already designed to replace only about 40% of pre-retirement income. That’s about half the amount you’ll need, or less, as experts suggest making sure earnings in your later years replace at least 80% to 90% of your salary. Shrinking Social Security checks means they’ll make even less.
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So why are they Social Security benefits reduced with a claim at 62?
That’s because early filing penalties apply each month you receive a payment before full retirement age. Full retirement age is between 66 four months and 67 (depending on date of birth). If you start checks at age 62, you would be claiming benefits up to five years before the FRA. The early filing penalties that affect you as a result reduce checks by 5/9 of 1% for the first 36 months, and by 5/12 of 1% per month if you have claimed more than 36 months prior to the FRA. A claim at 62 thus reduces benefits by 30%, since you lose 5% per year for receiving checks at 62 and 63, and another 6.7% per year for receiving payments at 64, 65 and 66.
If benefits are already too low to live on and you cut them by another 30%, this will likely leave you struggling unless you have ample savings to supplement your retirement income.
2. It could cause financial problems for your spouse
Most married couples receive two Social Security checks at home. However, when one of the partners dies, that person’s benefits cease.
The good news is that survivor benefits help reduce the financial hardship that can come from such a large cut in household income. Survivors’ benefits allow the person living longer to receive the greater of the two benefits that either spouse was receiving. If you were earning $1,800 in monthly Social Security checks and your partner was receiving $1,500, survivor benefits would allow your partner to continue receiving payments of $1,800.
If you were the highest earner, you should have the highest profit. The problem is, if you start your checks at 62 and reduce them, both your benefit and any survivor benefits left behind would end up much smaller, leaving your widow(er) with less to live on.
3. You could fool yourself with income for life
Finally, the last big concern is that you could end up with fewer lifetime benefits if you start checks at age 62.
Studies have shown about six out of 10 retirees they get more money in their later years if they delay filing for benefits until age 70 rather than earlier.
The reality is that Social Security’s system of early filing penalties and delayed retirement credits was designed decades ago to try to equalize lifetime benefits. Early filing penalties, along with late retirement credits, were put in place so early filers would get smaller monthly payments for more years, and late filers would get larger monthly payments, but not as many.
However, those who outlive their life expectancy end up beating the system if they delay claiming benefits, as they get their higher monthly checks for longer than anticipated and thus end up with more benefits for life. And because life expectancies have increased since the system was designed, more people end up living longer than anticipated and therefore receiving more money from Social Security over time.
Of course, if you claim Social Security early, you’ll forfeit this opportunity and therefore likely end up with less than you could have had. For this reason, along with the possible consequences for his spouse and the financial challenges that a reduced monthly benefit may cause, he should seriously reconsider any plans he may have to start his Social Security checks at age 62.
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