You get an eight-year window to sign up for benefits, but here’s why you may want to file as early as you possibly can.
You have choices when it comes to claiming Social Security. Your full monthly benefit, which is calculated based on your personal earnings history, is yours to collect once you reach what’s known as full retirement age, or FRA.
FRA is based on the year you were born, and it’s either 66, 67, or somewhere in between. But you don’t have to sign up for Social Security at FRA. You can claim benefits as early as age 62 in exchange for a lower monthly payment, or delay your filing until age 70 and boost your benefits by 8% a year in the process.
Many seniors opt to wait until FRA or beyond to claim Social Security. That way, they’re not lowering their monthly income. But here’s why you may want to sign up for benefits as early as possible instead.
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The upside of filing at 62
Claiming Social Security at 62 means subjecting yourself to the maximum reduction in benefits you can face. If your FRA is 66, filing at 62 will constitute a 25% hit to your benefits. If your FRA is 67, signing up at 62 will leave you with a benefit that’s 30% lower. But despite the hit you might face initially, claiming Social Security at 62 makes sense for one big reason: You’re not betting on your own longevity.
Social Security is actually designed to pay you the same lifetime total regardless of when you first start collecting benefits. Signing up at age 62 will shrink your payments on a monthly basis, but you’ll also get a larger number of individual payments. Meanwhile, filing at FRA or later will give you more money from Social Security each month, but fewer payments. You should break even in your lifetime if you wind up living an average life expectancy. But what if you don’t?
Without a crystal ball, it’s impossible to predict your own life span. While you may end up living well into your 80s or beyond, health issues might creep up in your late 60s or early 70s that shorten your life expectancy tremendously. The benefit of signing up for Social Security at 62 is that you get your money as soon as you’re eligible, and you’re not taking on the financial risk of dying at a relatively young age.
Of course, if you do end up living an extra-long life, filing for Social Security early could mean getting less income from the program all-in. But can you really afford to bank on that happening? If you claim your benefits at 62, you’ll have access to your money right away, and you won’t spend a good part of your 60s wondering whether you’re making a mistake by holding off.
It’s really all a gamble
Deciding when to sign up for Social Security is sort of like playing the odds and hoping for the best. If you’re convinced you’ll live a long life, then waiting to file is probably a better choice. But if you’d rather not bank on that longer life span, filing as early as possible may give you more peace of mind. That way, you know that no matter what happens, you’re at least getting a decent chunk of money from Social Security while you can.
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