Seniors can start Social Security retirement benefits upon reaching age 62. But while filing for benefits ASAP is a popular choice, it’s considered claiming early — and it can shrink the amount of your monthly check.
See, every American has a full retirement age based on birth year. It’s between 66 and four months and 67. Starting checks even a month before FRA results in a permanent reduction of monthly benefits. And, if you begin checks far ahead of FRA by claiming at 62 instead of 67, you end up with a 30% cut to monthly payments.
While receiving less money each month isn’t fun, there are times when an early claim makes sense. In fact, here are four situations when it could be the very best choice.
1. If early retirement is a priority and you need your benefits to make it happen
Sometimes, being able to leave work on your preferred schedule is worth a reduction in benefits.
If you can’t afford to support yourself without Social Security once your paychecks stop, claiming benefits ahead of your full retirement age may be your only option if you don’t want to work until you’re between 66 and 67 years old.
Before you decide to accept smaller benefits to enable early retirement, be sure you understand exactly how much your monthly income will shrink. If you can live comfortably on your reduced Social Security check plus your savings,this isn’t necessarily the wrong decision since people often prioritize living their preferred lifestyle over maximizing their monthly incomes.
2. If you’d end up draining your savings if you delayed your claim
In some cases, you simply cannot wait until you’ve reached full retirement age to retire. You may lose your job and be unable to get another one. Or you could find yourself in a position where you must leave work because your own health prevents you from maintaining a job or because a family member needs care.
When you must leave work, chances are good you’ll rely on savings to support you. The catch is that you can’t withdraw too much from investment accounts too quickly. If you don’t maintain a safe withdrawal rate, your falling principal balance could lower your potential returns and leave you at serious risk of running short of money while still dependent on your accounts.
You don’t want to let your funds run dry since Social Security can’t serve as your sole source of support. It’s designed to replace only around 40% of pre-retirement income, which is too big a pay cut compared to what you were earning. You must have both savings and Social Security to provide the minimum recommended amount of retirement income, which is about 80% to 90% of what your paycheck previously provided.
Since delaying your Social Security claim still won’t give you enough to cover all your costs, even though it will result in a bigger benefit, you’re better off starting your retirement checks early on rather than taking the risk of ending up with empty investment accounts. A smaller Social Security payment combined with savings is better than a bigger benefit later with no supplementary income at all.
3. If you’re not anticipating outliving your life expectancy
The reason Social Security reduces benefits for early filers and increases them for late filers is simple.
Actuaries predicted life expectancies and, based on this data, early filing penalties and delayed retirement credits were designed to enable retirees to theoretically receive an equal amount of benefits over the course of their life no matter how old they are when first starting their checks. Those who begin benefits before full retirement age simply get a greater number of smaller checks while delayed filers receive larger checks but don’t get as many.
Of course, the program is designed based on actuarial projections for all older Americans — not for each retiree specifically. As a result, those who outlive their life expectancy can end up with so many large checks that they do receive more lifetime benefits. But the converse is also true — people who pass away early may not break even for income they missed.
If you hope to wait until 67 to claim your Social Security checks in order to avoid any early filing penalties but you pass away at 65, your delay definitely won’t pay off for you. In fact, you’ll end up getting no benefits at all — although surviving family members may still be able to receive income based on your work history.
Although it can be impossible to predict whether you’ll live long enough for a delayed Social Security claim to pay off, you can make projections of whether the odds are in your favor based on factors such as your current health situation as well as your family health history. It’s worth thinking about this when you decide whether an early or late Social Security claim is your best bet.
4. If you want to unlock spousal benefits
If you’re married, your spouse can claim spousal benefits rather than their own retirement checks. Spousal benefits equal up to 50% of the primary earner’s monthly benefit at full retirement age (although they’ll be smaller if your spouse claims them ahead of their own FRA).
If your partner didn’t work for at least 10 years, they won’t be eligible for their own retirement benefits at all. Spousal benefits would be their only chance to get Social Security income. And if your spouse did work but you earned more, spousal benefits could still be higher than their own benefit.
The catch, however, is that your partner cannot claim their spousal benefits on your work record if you didn’t claim your own benefits yet. So, if you want to prioritize unlocking these benefits ASAP, you may want to claim Social Security early rather than waiting until full retirement age or beyond.
Ultimately, there’s tradeoffs to make when deciding between an early or late Social Security claim. You’ll need to consider your lifestyle, your other income sources, and your options for maximizing lifetime income for you and your spouse when making the choice about when to begin your benefits.
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