You pay into Social Security throughout your working life and you understandably can't wait to start getting money back from the program when you're older, but too many people rush to sign up for benefits as soon as they turn 62 without considering the consequences. This might be the best move for some people, but if you expect to live into your late 80s or 90s, you're shortchanging yourself by signing up as soon as you're eligible.
When you begin claiming Social Security affects your benefits
You become eligible for Social Security at 62, but you don't have to start claiming benefits right away. In fact, during so could hurt you in the long run. The Social Security benefit formula bases your check size on your average indexed monthly earnings (AIME) during your 35 highest-earning years. But if you'd like to receive this amount, you must wait until your full retirement age (FRA) to begin claiming. This is 66 or 67 for today's workers.
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Every month you claim benefits before your FRA, your checks decrease. If you begin right away at 62, you'll only get 70% of your scheduled benefit if your FRA is 67 or 75% if your FRA is 66. To put that in perspective, let's consider the average Social Security benefit check, which is $1,472 per month as of July 2019. If you were entitled to this at 67 and you begin claiming benefits at 62, you'd only get $1,030 per month.
Your checks don't increase once you hit your FRA, so by starting early, you're permanently reducing the amount you receive over your lifetime. Let's return to our previous example. If you started Social Security at 62 and received $1,030 per month, that comes out to $12,360 per year. If you claimed benefits for 30 years -- which is not unreasonable, considering the Social Security Administration estimates that one in three 65-year-olds today will live past 90 -- you'd receive $370,800 over your lifetime. If you'd waited until 67 to claim benefits, you'd receive $1,472 per month, or $17,664 per year. Assuming the same life expectancy, you'd only claim benefits for 25 years in this scenario, and that adds up to $441,600. If you live even longer, the differences between the two amounts grow even more.
There's a third option we haven't discussed yet and that's delaying retirement benefits beyond your FRA. Doing so will increase your checks until you reach the maximum benefit at 70. This is 124% of your scheduled benefit per check if your FRA is 67 or 132% if your FRA is 66. If you intend to live a long life, this is probably the way to go if you want the most benefits.