When it comes to signing up for Social Security, you have choices. You can file at full retirement age (FRA), at which point you’ll get the full monthly benefit you’re eligible for based on your wage history. FRA is 66, 67, or somewhere in between, depending on when you were born.
You can also file for Social Security starting at age 62. Or, you can delay your filing indefinitely (though financially speaking, there’s no incentive for postponing your filing beyond the age of 70).
Age 62 happens to be the most popular age to sign up for benefits. But here’s why you might get hurt if you go that route.
1. You’ll shrink your monthly benefit for life
For each month you claim Social Security ahead of FRA, your monthly benefit will be reduced. Filing at 66 when your FRA is 67 will shrink that benefit by 6.67%. But filing at 62 with an FRA of 67 will mean taking a 30% hit. That hit will then remain in effect for the rest of your life unless you manage to undo your filing, which isn’t an easy thing to do, financially speaking.
Now if you have a heaping pile of retirement savings to your name, then a 30% reduction to your monthly benefit may not be a big deal. But if you expect Social Security to be a substantial source of income for you, then a hit that large is something you’ll probably want to avoid.
2. You’ll have benefits withheld if you work and earn too much
The Social Security Administration will let you work and collect benefits at the same time. But if you do so before reaching FRA, you’ll risk having some benefits withheld if you earn too much.
Say you’re claiming benefits at 62 this year and also still have a job. You can earn up to $18,960 without having your paycheck affect your benefits. Beyond that point, though, you’ll have $1 in Social Security withheld per $2 you earn above that limit.
Now the benefits you have withheld won’t be lost forever. You’ll get that money back once you reach FRA. But the hit to your benefit you’ll lock in by filing early will remain in place for the rest of your life.
3. You may cut your career short rather than keep working to pad your savings
Many people are able to work well into their 60s or even into their 70s. And if you’re not doing all that well in the retirement savings department, then it could pay to push yourself to work a few more years in order to eke out money for your 401(k) or IRA.
If you claim Social Security at 62, you may decide to take the opportunity to end your career early. But that could end up leaving your short in the savings department.
Be careful when claiming benefits early
In some cases, filing for Social Security at 62 makes a lot of sense. But it’s important that you understand the pitfalls as well. That way, you’ll be able to make a smart decision based on your personal circumstances and needs.