Age 62 is the earliest age at which you can start receiving Social Security retirement benefits. It’s also the most popular age to claim benefits [1], especially for women. Deciding whether to claim now or wait until Full Retirement Age is an important decision. Claiming early Social Security retirement benefits can make sense for some people. However, it permanently reduces your monthly payment amounts and can impact total lifetime benefits. Here’s what to consider before claiming early Social Security retirement benefits at age 62.
How Retirement Benefits Are Calculated
How much you’ll receive in retirement benefits depends on how long you worked and how much you earned.
The Social Security Administration (SSA) uses your 35 highest earning years to calculate your retirement benefits. Years with low or no income reduce your benefit amount. This means that if, for example, you left the workforce to care for children or other family members, you may want to continue working as long as possible. This will boost your retirement benefits by replacing a low or zero earnings year with a higher one.
You can review your earnings record online by creating and accessing your Social Security account. The SSA’s Retirement Estimator can help you estimate your future retirement benefits.
For specific questions, call the Social Security Administration at (800) 772-1213, visit Social Security online or find your local office here.
Claiming Early Social Security Retirement Benefits
Claiming Social Security benefits at age 62 can prove costly. Your monthly benefit check will permanently decrease by 20-30%. This chart illustrates how much an estimated $1,000 monthly benefit payment will be worth if you start taking it at age 62, relative to your Full Retirement Age.
| BIRTH YEAR | FULL RETIREMENT AGE | BENEFIT |
|---|---|---|
| 1943-1954 | 66 years | $750 |
| 1955 | 66 years, 2 months | $741 |
| 1956 | 66 years, 4 months | $733 |
| 1957 | 66 years, 6 months | $725 |
| 1958 | 66 years, 8 months | $716 |
| 1959 | 66 years, 10 months | $708 |
| 1960 and later | 67 years | $700 |
Source: Social Security Administration
Delaying Social Security Retirement Benefits
Conversely, you can also defer retirement benefits. This typically increases your annual payout by about 8% for each year you delay beyond your Full Retirement Age, to a maximum of age 70.
When to Claim Social Security Benefits
Whether to apply for benefits at age 62 or defer payments depends upon many factors:
1. Early Social Security Retirement Benefits and Longevity
One consideration is how long you’ll live. The Society of Actuaries’ data suggests that a 65-year old male today in average health has a 35% chance of living to age 90; for a woman, the odds are 46% [3]. If you anticipate a longer retirement, delaying retirement benefits could enhance your lifetime payments, as your monthly amount will be higher. Conversely, if you expect a shorter lifespan (perhaps due to illness or family medical history), electing early benefits could be more advantageous.
People typically reach their ‘break-even age’ about 12 years after Full Retirement Age. That’s the point at which your total lifetime benefits will be greater by claiming early than they would be if you wait to claim benefits.
2. Retirement Income Needs
Another important factor to consider is how much income you’ll need in retirement. For 2021, the average monthly Social Security benefit at Full Retirement Age is $1,543 [4]. Typically, Social Security retirement benefits replace only about 40% of earnings [5]. For higher earners, this percentage is much lower.
If you project a gap between your retirement income and expenses, waiting to claim Social Security benefits could improve your financial outlook. The longer you work without claiming benefits, the more money you earn (and potentially save), and the higher your future monthly benefit will be.
Your annual cost-of-living (COLA) increase (1.3% for 2021 [6]) will also be worth more. That’s because it’s based on your initial year’s benefits, so the higher your initial benefit, the greater your annual COLA increase will be in the future.
3. Working and Claiming Early Social Security Retirement Benefits
Another factor that may impact your decision whether to claim early Social Security retirement benefits is if you plan to work and claim benefits. If so, your benefits will be reduced by $1 for every $2 you earn over the annual earnings limit, until you attain your Full Retirement Age. For 2021, the annual earnings limit is $18,18,960.
Example: You start collecting Social Security benefits in 2021 at age 62. You also continue to work, earning a salary of $40,000. Your annual benefit will be reduced by $10,520 ($40,000 minus $18,960, divided by 2) until you attain Full Retirement Age.
However, even if your monthly benefit is reduced in the short term because of your earnings, you’ll end up receiving a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach Full Retirement Age, omitting months in which your benefit was reduced.
4. Health Coverage in Retirement
Even if you start claiming Social Security retirement benefits at age 62, you won’t be eligible for Medicare until you reach 65 years of age. Continuing to work can safeguard your health coverage. Without coverage through Medicare, a work plan, or your spouse’s health insurance, you’ll need to purchase an interim health policy and pay out-of-pocket until Medicare coverage kicks in at age 65.
5. Other Financial and Life Considerations
There are many other factors that might influence your decision to claim Social Security retirement benefits early. For example:
- Other sources of retirement income.
- How your income taxes may be affected by benefits.
- Personal considerations such as traveling, volunteering, returning to study, starting a business, pursuing a hobby, or moving your home.
- Dependent family members such as grandchildren or elderly parents.
SageVest Wealth Management understands that your wealth acquires new meaning as you approach and enter retirement. Our customized retirement planning includes a range of ‘what if’ scenarios, to help ensure that your financial and life priorities remain aligned as you near and enjoy retirement. Please contact us for more information.
For more helpful articles on retirement and other financial topics, please visit our blog.
References
[1] https://www.fool.com/retirement/2020/03/08/what-most-popular-ages-claim-social-security.aspx
[2] https://www.ssa.gov/planners/lifeexpectancy.html
[4] https://www.ssa.gov/news/press/factsheets/colafacts2021.pdf
[5] https://www.ssa.gov/planners/retire/r&m6.html
[6] https://www.ssa.gov/news/press/factsheets/colafacts2021.pdf
