There’s a reason 62 has long been the most popular age for filing a Social Security claim – it’s the sooner a person can start collecting the retirement benefit.
The size of your monthly Social Security checks will be based on a formula that begins by averaging your income adjusted for inflation over your top 35 years. Your “full monthly benefit” based on this calculation will be yours to collect if you wait to deposit until you reach your full retirement age (FRA) – somewhere between 66 and 67, depending on your due date. birth.
But as I just mentioned, a lot of older people don’t wait that long to register for Social Security. Instead, they file claims for benefits on the day they qualify.
It is a path that you may be exploring as well. This would allow you to get your money earlier and possibly start early retirement. But before you rush to claim Social Security at 62, think about the long-term financial consequences.
Can you afford to reduce your guaranteed income stream?
Ideally, you will enter retirement with a good amount of money hidden in your investment accounts. If you pull out of this portfolio carefully enough, it can last into your retirement years.
But this is not a guarantee. Depending on factors such as the good (or bad) return on your investments, you may find yourself in a scenario where you completely exhaust your nest egg. And that could leave you in a world of financial distress.
Social security is guaranteed to give you a monthly benefit for life. And that’s why reducing yours by depositing to 62 might end up being a bad idea.
For each month before your FRA that you file, your monthly payment is gradually reduced by a small percentage. But these increments add up. If your FRA is 67 and you file at 62, you will reduce the amount of each Social Security payment you receive by 30%. So if, for example, you would qualify for a monthly benefit of $ 1,500 at age 67, the deposit at age 62 would only leave you with $ 1,050 per month.
That $ 1,050 may be fine as long as you still have investments and assets to leverage. But even your full retirement benefit is designed to replace only about 40% of your pre-retirement income. If your savings are running out, you will likely find that cutting benefits is not about to reduce them.
Plus, you never know how much your expenses may increase as you age. Many older people end up spending more on health care as they move into retirement. And about half will eventually need some type of long-term care at some point in their life, which can be costly.
Having a higher monthly benefit could be crucial if your bills start to climb during the later stages of your retirement, especially because at this point working part-time to make up for gaps in your budget may not be an option.
Make the right call
While it can be tempting to claim Social Security as soon as you are eligible, you will need to think carefully about whether this is really the right choice for you. If you don’t want to wait for your FRA to enroll, you might consider taking the middle ground, perhaps by declaring age 65 as the age at which you can enroll in Medicare.
Finally, consider this. As the nonprofit Center on Budget and Policy Priorities notes, Social Security provides at least 50% of the income of about half of seniors in the United States, and for about a quarter of them, it provides at least 90%. In other words, there’s a good chance this payment will be very important to your financial health in retirement. For that reason alone, you might want to rethink the idea of filing at age 62 and ensuring yourself a much lower monthly benefit.
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