The Social Security Administration is pretty flexible when it comes to letting seniors sign up for benefits. You can file for Social Security as early as age 62, or delay your filing until age 70. In fact, you technically don’t have to claim benefits once you turn 70, but there’s no financial incentive to postpone your filing any longer.
Now since this is the case, you may be thinking, “What’s the downside of filing at 62?”
But actually, there’s a big one. If you sign up for benefits before full retirement age (FRA), which is either 66, 67, or 66 and a specific number of months, depending on the year you were born, you’ll reduce them on a permanent basis. Filing for benefits at age 64, for example, will shrink your benefits by 20% if your FRA is 67. Meanwhile, filing at 62 will result in the greatest reduction possible in that scenario — a cut of 30%.
Age 62 is the most popular age for seniors to sign up for Social Security, so clearly, a lot of people are willing to forgo a higher benefit to get their money sooner. But if that’s the direction you’re leaning in, here’s why you may want to reconsider.
Retirement could cost more than you think
Many people are quick to assume that their living costs will drop dramatically once they stop working. But when you step back and think about it, that’s unlikely to happen.
Sure, you might save money by not having to commute, and also, you won’t have to make contributions to a retirement savings plan since, well, you’re already be in retirement. But other than that, many of the bills that you face later on in your career are apt to stay in place during retirement. And some may even go up.
Take healthcare, for example. It’s easy to assume that your costs will drop once you enroll in Medicare, but actually, Fidelity just released its latest estimate on senior healthcare costs, and it found that the average 65-year-old male-female couple today will spend a whopping $300,000 on medical care throughout retirement. For singles, the average male retiree is looking at $143,000, while the typical female is looking at $157,000.
Then there’s entertainment. You might assume that you as age, you’ll go out less and do less, but consider this — working full-time gives you something to do with your days. Once you retire, you’ll need to stay busy and fill the 40 hours a week or more you’d normally spend on the job. That’s apt to cost some amount of money, even if you’re savvy enough to seek out inexpensive entertainment options.
It’s for this reason that filing for Social Security at age 62 may not be a smart bet. Though it’s tempting to get your money sooner, the flipside is that you’ll leave yourself with a lower monthly benefit for life, and that could result in a serious financial crunch once you realize just how expensive retirement is in practice.
Make the right call
To be clear, filing for Social Security at age 62 makes sense in some cases. If you’ve really saved a bundle for retirement, for instance, then you may want your benefits sooner so you can use them to travel while you’re a bit younger. And if you have more than enough money in your IRA or 401(k) plan to cover your senior living costs, then a hit to your Social Security paycheck may not hurt you.
Furthermore, you may find yourself out of a job at age 62 through no fault of your own. At that point, claiming Social Security at 62 may be necessary.
The point, however, is that before you assume that age 62 is the best time for you to claim your benefits, consider what a higher monthly income stream from Social Security might do for you throughout your senior years. There’s a good chance you’ll realize you can’t afford a substantial hit to your benefits, and that waiting until FRA or even beyond is a better choice.
