Before making a decision to claim early retirement benefits, it’s important to carefully weigh your options. The amount you receive each month from Social Security is directly linked to your personal earnings history. This is because the system bases its calculations on your top 35 earning years. Another key factor that determines your monthly Social Security benefit is your age when you start receiving these benefits.
For individuals born in 1960 or later, the full retirement age (FRA) is typically 67. Reaching this age means you can claim the entire monthly benefit that your earnings record allows. But taking Social Security benefits at 62 can have long-term implications for your retirement finances. A major concern is the risk of exhausting your financial resources prematurely.
The risks and rewards of early Social Security benefits: making an informed decision at 62
It’s possible to start receiving Social Security benefits as early as age 62, thanks to the Social Security Administration (SSA) policies. However, there’s a significant downside to this early start: a reduction in the amount of benefit you receive. The idea of retiring early can be attractive, offering the freedom to scale back work commitments or enjoy leisure activities while you’re still full of energy.
Imagine you’ve managed to save a considerable retirement fund, say around $500,000 or maybe even $1 million. Despite this impressive sum, there’s no guarantee it will last throughout your retirement, especially in the face of unpredictable factors such as market downturns or longer than expected life spans.
For instance, you might estimate living into your late 80s based on family health history, but what if you live much longer? Reaching an advanced age like 101 is certainly a triumph in terms of health, but it could strain your financial resources.
Therefore, it may be wise to postpone claiming Social Security rather than rushing into it early. If you claim at 62 and face a benefit reduction, you’ll have a smaller financial buffer should your savings deplete faster than expected. This could lead to difficult choices regarding your lifestyle and spending in your later years.
Instead, consider waiting until you reach your Full Retirement Age (FRA). For every year you delay your claim past your FRA, up until age 70, your monthly benefit increases by 8%. By waiting until you turn 70, you substantially strengthen your financial security in retirement.
However, if your retirement plans involve leaving the workforce earlier, waiting until 70 might not be practical. In such scenarios, a balanced approach would be to delay your claim until you reach your FRA. This won’t increase your monthly benefit, but it will prevent the reduction that comes with claiming at 62.
In light of the uncertainty surrounding how long your savings might last and your lifespan, adopting this careful strategy when considering Social Security benefits is a sound choice.