Social Security: 5 Great Reasons to File for Benefits at 62
Christy Bieber, The Motley Fool
Updated
If you file for Social Security benefits at age 62, which is the first year you become eligible, your benefits will be reduced by as much as 30%.
The Social Security Administration has set full retirement age (FRA) at 67 for people born after 1960, or a little sooner if you were born before that date. Your standard Social Security benefit is based on retirement at FRA, and if you retire early, you'll find your Social Security benefit reduced by 5/9 of 1 percent per month before FRA and an additional 5/12 of 1 percent if you've claimed benefits more than 36 months before FRA.
Because your Social Security benefits go up if you wait longer -- increasing until age 70 -- many financial experts recommend waiting as long as you can to claim benefits. However, while this advice often makes sense, there are important reasons that you may decide to claim Social Security benefits at 62 despite the fact this means a smaller benefit.
In fact, here are five reasons to file for benefits at 62 instead of waiting until you're further into your golden years.
Social Security card with money
Image Source: Getty Images.
1. You may need the cash
Age 62 is actually the most common age to claim Social Security in the United States, according to the Center for Retirement Research at Boston College. One of the big reasons for claiming benefits at 62 is financial need.
Many seniors who claim their benefits at 62 physically can't work anymore or are unable to find jobs that would support them. If you don't have enough income to live on and you can't find a job to earn more, you're obviously better off claiming Social Security benefits rather than being destitute.
The good news is, if you end up finding work later, your Social Security benefits will be reduced once you earn above a certain threshold -- and you'll get credit for that reduction and get back more benefits later. This means you could take Social Security to get you over a tough period, but if you eventually find employment, you won't necessarily be stuck with the lower benefit forever.
2. You want control over the cash
Although the Social Security trust fund has enough money to pay out benefits at current levels until 2034, there's plenty of concern about the future of the Social Security program. You may decide you'd rather start drawing benefits as early as possible so you maximize what you receive before a possible future benefits cut.
You may also determine that if reforms are made to Social Security, those reforms are more likely to impact future beneficiaries than people who are already drawing benefits. If that's the case, the sooner you start to claim your Social Security, the less likely you are to be among the group whose benefits are altered.
And even if you don't think the government's going to stop paying benefits, you may decide you'd rather have the money in your pocket rather than being held by the government in trust to be paid out to you later. You could start claiming your benefits and investing the money yourself once you turn 62 -- and the gains on those investments could potentially make up for the amount you lose out on because of claiming early.
Of course, you're giving up a guaranteed higher benefit in the hope your investment will perform well enough to make it worth it -- so this is a high-risk strategy unless you're really confident your investments will do well.
3. You've coordinated a plan with your spouse
If you're married, decisions about Social Security must take your spouse into account. There are 81 different claiming strategies married couples could use to maximize their Social Security benefits, and many of those strategies involve at least one spouse claiming Social Security benefits at 62.
For example, one strategy involves a lower-earning spouse claiming benefits at 62 to support both spouses while the higher earner continues working and earning delayed retirement credits. The higher earner can retire with the biggest possible Social Security benefits at 70 -- and that big benefits check could be passed on to whichever spouse survives the longest.
Alternatively, if your spouse never worked, he or she may want to get benefits on your work record -- which wouldn't be possible until you start receiving benefits yourself. If you claim benefits at 62, you open the door for your spouse with no earnings or low earnings to begin receiving higher benefits than your spouse would have gotten on their own. This could be especially beneficial if the nonworking spouse is older than the primary breadwinner and has already reached full retirement age.
4. You have plenty of retirement savings
Delaying Social Security benefits is important if you need to maximize the income you have coming in from those benefits. If you already have plenty of savings and won't need to rely on Social Security to make up a huge portion of your income, there's less incentive to delay in order to supersize your benefit.
Instead, you may decide you want to claim Social Security as soon as possible so you can leave as much of your investment money alone in your accounts. If you end up living a long time, your investments will be enough to support you even with your smaller Social Security check -- but if you don't end up living as long as you'd hoped, the extra money you kept in savings thanks to spending your Social Security can be passed on to your kids.
5. You aren't sure how long you'll stay healthy
According to a Nationwide Retirement Institute survey, 37% of current retirees indicated health problems kept them from the retirement they dreamed of. Eight in 10 recent retirees indicated they experienced health problems much earlier than expected.
If you have health issues and don't expect that you'll have a long and healthy retirement, it may make sense to claim Social Security benefits as soon as possible so you'll have more years to enjoy your benefits. This is especially true if you don't think you'll live long enough to break even on delaying benefits.
Of course, the downside is, if you do end up outliving your expectations and you've taken Social Security early, you'll be stuck living on the smaller benefit when you're older -- which can make it even harder to afford costly healthcare.
Still, Medicaid can help you cover long-term care costs and pay some of your medical expenses if you truly get into dire financial straits as an older senior, while claiming Social Security benefits early may be the only way you'll have the income you need to enjoy your healthy retirement years to the fullest.
When should you take Social Security?
Although these are all good reasons to claim benefits at 62, claiming at a different age may make more sense given your personal financial situation.
The key is to understand exactly how Social Security works so you can make a fully informed choice regarding when it's the right time to start your benefits. By doing your research and taking time to learn about the program, you can maximize the chances you'll have the income you need to help fund a secure retirement.
