Social Security is an important income source for millions of retirees. Chances are, it will play a big role in your retirement finances, too. It’s important to claim benefits at just the right time, because your filing age will dictate how much monthly income you receive from the program.
You’re eligible for your complete monthly benefit based on your earnings history at full retirement age, or FRA. If you file before FRA, you’ll get a reduced benefit.
Meanwhile, age 62 is the earliest age you can sign up for Social Security, and not surprisingly, it’s a popular one among seniors. But while there are plenty of good reasons to file for Social Security at 62, here are three reasons it may not be the best route for you to take.
1. You’ll shrink your monthly benefits for life
It’s a big myth that if you claim Social Security before FRA, your benefits will be reduced temporarily but then get restored to their full amount once you reach your FRA. If you file for Social Security at age 62, you’ll lock in a monthly benefit that’s 25% to 30% lower than would it would be at FRA. But that reduction will then remain in place permanently, leaving you with less monthly retirement income to look forward to.
Now, you can technically undo an early Social Security filing and snag yourself a higher benefit — but only if you do so within 12 months of filing and repay all of the money you received. Since the latter may not be possible, it’s often the case that those who claim Social Security at 62 shrink their benefits for the rest of their lives.
2. You may be inspired to retire early
If you sign up for Social Security at age 62, you may be tempted to leave the workforce at that point and try to live off of your benefit payments. But retiring at age 62 has consequences. For one thing, it could mean not contributing to your savings for a few extra years, thereby limiting you in that regard. But it could also mean having to scramble to pay for healthcare coverage — or skimping on coverage and harming your health.
Even though you can sign up for Social Security starting at age 62, you can’t enroll in Medicare until you’re within a few months of your 65th birthday, and Medicare coverage itself doesn’t start until you turn 65. So if filing for Social Security at 62 inspires an early retirement, it could be a detrimental move both health-wise and money-wise.
3. You might deplete your nest egg prematurely
If you sign up for Social Security at age 62 and lower your monthly benefit in the process, it might mean having to take larger withdrawals from your IRA or 401(k) plan every month. And that could lead to a scenario where you risk depleting your nest egg in your lifetime rather than having it last throughout your retirement.
Be careful when filing early
Claiming Social Security at age 62 isn’t automatically a bad idea. But it’s important to recognize the negative consequences of doing so before making your decision.
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