Claiming Social Security at 62? Maybe you should reconsider | Smart Change: Personal Finance

(Chuck Saletta)

One of the biggest decisions most people have to make when it comes to Social Security is when to start taking benefits. You can start your retirement benefits as early as age 62, but the longer you wait — until age 70 — the higher your monthly benefit will be.

The most popular age to claim benefits is 62, and it has the advantage of giving you the largest number of checks you can receive in your lifetime. But if you plan to claim Social Security at age 62, you may need to reconsider.

That one advantage comes with many drawbacks, and if you’re not prepared for it before making that decision, it could cause more problems than you think. Read on to discover five reasons why.

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New. 1: If you are still working, you will be punished

At 62, you’re younger than what Social Security considers you full retirement age. As a result, you will be penalized for collecting your benefits if you are still receiving a paycheck. That fine is high — in 2021, it’s $1 for every $2 you make over $18,960 in the year.

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As a result, it generally makes no sense to collect your Social Security benefits while still working if you are under full retirement age. If you earn a decent salary, you can even lose your full advantage while still working which makes it a complete waste.

New. 2: Your monthly benefit is permanently reduced

Because you’re raising money for longer, your monthly benefit will be much lower than what you would receive by waiting until full retirement age (FRA). If you were born in 1960 or later, you will get 30% less than what you would get with the same income record by waiting for your FRA.

like you thought your monthly benefit would be $1,563 — about the average retirees currently receive — your actual benefit would be closer to $1,094. That’s a significant reduction, and if you don’t plan on it, it could make a substantial difference in what you can afford in retirement.

New. 3: You may have $0 or low-earned years on your record

Social Security bases your benefit level on your highest 35 years of covered income. The younger you are when you apply for benefits, the more likely you are to have $0 or very low income on that list. If you can keep working after age 62, you may be able to replace it with decent earnings figures at the end of your career.

Having more income can make a significant difference in what you get from the program, especially if you plan to provide much of your retirement income through Social Security.

New. 4: Your inflation protection is decreasing

Social Security will annually review how high the inflation has been and adjust the benefits if the costs have risen sufficiently. The inflation adjustment for 2022 is a no less than 5.9%, the highest amount in decades. While everyone gets the same percentage rise, those with higher benefit levels get more dollars from their inflation adjustment.

That amount comes along with any inflation adjustment, which means it’s just that much easier for someone who has deferred claiming Social Security to keep up with inflation over time. The table below shows the difference waiting to claim can have on that inflation protection. It shows the potential range of inflation-adjusted benefits before and after 2022 for an individual whose full retirement age is 67 and whose benefit at FRA would be $2,000 per month in 2022.

claim age

Prior benefit

Inflation Boost

New advantage

62

$1,400

$82.60

$1,482.60

67

$2,000

$118.00

$2,118.00

70

$2,480

$146.32

$2,626.32

Data source: Social Security. Table by author.

If you live on a steady income, every little bit helps. Both have a greater everyday advantage and getting more dollars with that inflation adjustment by waiting after 62 can make the difference between staying comfortable and having to make tough choices.

New. 5: Your surviving spouse may thank you

When a member of a married couple dies, the surviving spouse can often receive the higher of the couple’s two Social Security benefits. While the surviving spouse may be able to live on less than the two can live on as a married couple, the loss of income due to withdrawal of benefits can still be financially painful.

In addition to the direct loss of money, a widow or widower quickly loses the opportunity to file a joint tax return. That means any remaining earnings may be exposed to higher taxes, which can make a difficult situation even more difficult.

Therefore, consider who you may leave behind once you graduate and what your death will mean for their financial well-being before deciding when to collect your Social Security benefits. A little wait can make an incredible difference to someone you love.

Waiting might be worth it

Social Security is designed to play a role in – but not be the only source of funding for – your retirement. When considering whether 62 is the right age for you to claim benefits, you need to look at your overall financial picture before committing. You might find that waiting a little bit may end up being a better choice.

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