The average senior today collects roughly $1,400 a month in Social Security, and that money no doubt comes in handy for necessities and luxuries alike. But if you're not smart about when you file for benefits, you could end up shortchanging yourself on the Social Security front.
Though your benefits themselves are calculated based on your earnings during your working years, the age at which you first file for them has an impact, too. If you claim benefits at full retirement age, which, depending on your year of birth, is either 66, 67, or 66 and a certain number of months, you'll get the full dollar amount your work record entitles you to, payable on a monthly basis.
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That said, you don't have to wait until full retirement age to start taking benefits. Rather, you can claim them as early as age 62 -- an option many seniors choose to capitalize on.
But while the idea of getting your hands on your money might seem appealing at first, you should know that going this route will result in an automatic reduction in your monthly payments. Now that total reduction will be a function of your full retirement age and how far ahead of it you're claiming benefits, but if that age is 66, you'll take about a 25% hit. If your full retirement age is 67, you'll lose about 30% of your benefits. And with that in mind, here are a few reasons why filing for Social Security at 62 might really hurt you in the long run.
1. Seniors are living longer
You might think that a reduction in benefits is a small price to pay for getting your hands on that cash sooner. But when you think about how long you might live, that's a lot of money to potentially lose out on. According to the Social Security Administration (SSA), the average 65-year-old man today is expected to live until 84.3, while the average 65-year-old woman is expected to live until 86.6. Not only that, but 25% of 65-year-olds will live longer than 90, while 10% will live past 95.
Before you prepare to accept a lower monthly benefit for life, thing about how long you might actually continue to exist on this planet, and consider that you may be selling your life expectancy short. Remember, Social Security's payout formula is actually designed to reward you financially if you hold off on filing and then live a longer than average life, so if your health is great, you might consider sitting tight for a while and letting those benefits grow.
2. You'll likely get stuck with a lower monthly benefit for life
Some people who file for Social Security at 62 do so because of a pressing need for money. Those same people, however, might assume that once they get back on their feet financially, they'll simply withdraw their application for benefits and start over later on with a clean slate, thereby avoiding a permanent reduction in their monthly payments.