Unlike Medicare, which kicks in at exactly age 65, you get an eight-year window to start collecting Social Security. The earliest age to receive benefits is 62, and incidentally, it’s also the most popular age to file. The latest age to file, meanwhile, is 70, and somewhere in between is your full retirement age, or FRA.
Why does it matter when you sign up for benefits? It’s simple: The age at which you first file will impact the amount of money you collect each month. If you file for benefits at FRA, which is either 66, 67, or 66 and a number of months depending on the year you were born, you’ll collect what’s known as your full monthly benefit. This is the total amount you’re entitled to based on your earnings history.
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On the other hand, if you claim Social Security before reaching FRA, you’ll lose a portion of your full monthly benefit for each year you file ahead of schedule. Then there’s the flip side — filing after FRA will allow you to grow your benefits by 8% a year up until you turn 70, at which point there’s no sense in waiting any longer.
Clearly, filing for Social Security early — meaning, before FRA — comes with the major consequence of potentially lowering your monthly payments for life. But that doesn’t necessarily mean it’s a bad idea. Here are a few scenarios where it pays to take benefits early, reduction and all.
1. You’re out of work and broke
It’s estimated that 60% of workers are forced to retire earlier than planned. For many people, it’s a matter of failing health. For others, early retirement happens when they lose their jobs and can’t find new work. Regardless of the circumstances, if it turns out you have no choice but to bring your career to a close sooner than anticipated, and you have minimal savings, you’re better off filing for Social Security and covering your bills than struggling financially or racking up serious credit card debt later in life.
A frightening 33% of adults 55 and over have less than $10,000 in savings. If you’re one of them, and you find yourself out of work before FRA rolls around, then you pretty much have no choice but to take benefits, unless you somehow have another hidden income stream to tap.
2. Your health outlook isn’t great
One interesting thing about Social Security is that it’s designed to pay you the same total amount over the course of your lifetime regardless of when you initially file. How is that possible?
When you file before FRA, you lose a portion of your benefits, but you also collect a greater number of individual payments. These two factors will therefore cancel each other out if you live an average life-span. If you don’t but, rather, pass away sooner than expected, you’ll generally come out ahead financially by taking benefits as early as possible. Therefore, if your health is poor, it pays to file as soon as you can.
Imagine you’re looking at an FRA of 67, at which point you’d get a full monthly benefit of $1,600. Filing at age 62 instead of 67 would reduce that monthly benefit to $1,120, but you’d get 60 more payments in your lifetime. By roughly age 78 1/2, you’d break even with around $224,000 in total benefits. But if you pass away at 73, you’d end up getting $32,000 more out of Social Security by filing at 62 rather than waiting. Therefore, while it’s never pleasant to assume you won’t live a long life, being realistic about your health can help you make the right filing decision.
3. You want the money but aren’t reliant on it
We just learned that a third of older workers are in bad shape financially as far as retirement savings go. But then there are those who are approaching age 62 with plenty of savings to pay the bills when they’re older. If your nest egg is healthy, and you’re confident you can cover your senior living expenses without having to rely on Social Security, then claiming benefits before FRA might allow you to better enjoy the earlier portion of your golden years.
Say you decide to take benefits at 62, knowing a lifelong reduction won’t hurt you financially, and use that money to travel. You’re apt to have a lot more energy to do so at 62 than at 67, so if you have that flexibility, why not take advantage of it?
Though it often pays to wait on Social Security and grow your benefits as much as possible, there are obviously some circumstances where filing early is the way to go. Weigh your options carefully, and with any luck, you’ll end up making the best decision for your retirement.