When you first become eligible for Social Security benefits at 62, you may be tempted to claim them ASAP. After all, you've been paying into the system to earn these benefits over your entire working life. And, it's really exciting to finally get some regular monthly income coming in without having to work for it.
Unfortunately, if you claim Social Security at 62, you could really come to regret it. Here's why.
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Shrinking your Social Security checks could have long-term financial consequences
The big problem with starting your Social Security checks at 62 is that doing so would mean receiving a much smaller amount of monthly income than you would've received if you'd waited. See, if you want to get your standard benefit, you must wait until a designated full retirement age. That's going to be between 66 and two months and 67, depending on when you were born.
Any month you start your checks before FRA will result in a reduction in your standard benefit amount. And if you're claiming at 62, you're going to be hit with a lot of those penalties since you'll be starting your checks at least four years and two months before FRA. In this case, your benefits cut would be about 25.83% compared with your standard check amount. For those with an FRA of 67, that penalty goes up to 30%.
Since the average Social Security benefit isn't very high to begin with, a 30% cut to benefits could leave you with a check that doesn't even come close to covering necessities. And you could end up regretting the fact your retirement income is so small if you have too little savings.
See, unlike most sources of retirement income -- such as money from your investment accounts -- Social Security benefits are guaranteed to last for the entire rest of your life. By claiming them at 62, you'll reduce what's likely to be the only source of retirement funds that's 100% certain not to disappear while you're still relying on it.
Now, Social Security alone isn't really enough to live on. But, 37% of senior men and 42% of senior women get 50% or more of their money from these retirement benefits while 12% of older men and 15% of older women get at least 90% of their income from them.
If you're going to end up relying on these benefits as a primary support source, you could end up in really dire straits if you've shrunk your check amount. That's especially true as many seniors end up facing some of their highest expenses later in life once they develop medical issues that require expensive healthcare.
What if you already claimed Social Security at 62?
So, what if you've already claimed Social Security at 62 and now you wish you hadn't? You may have a few options available to you.
One possibility is to withdraw your application. This works only if you filed for benefits within the last 12 months, though. And you'll have to repay all the money you've already received, which could be a challenge. But, this will ensure you aren't subject to any early filing penalties that shrink your checks.
Going back to work could also help, if you're below full retirement age. If your earnings are high enough, you end up forfeiting some of your Social Security benefits. At full retirement age, your benefits are recalculated and you're credited back the early filing penalty for any month a check didn't come. That can help you boost your future checks in case you need to rely on them later in life.
Delaying Social Security could provide more of the money you need
Ideally, you should have plenty of supplementary savings so the age when you start Social Security won't really matter much. These benefits are meant to replace just 40% of pre-retirement funds, so you'll want invested funds or a pension to provide the rest of the money you'll need to support yourself.
But this often isn't the reality and many older Americans face a substantial risk of their investments running short. If there's even a chance that you'll need Social Security as a main support source, you don't want to claim at 62 and make a check that's already too small even smaller.
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