Because Social Security eligibility kicks in at age 62, many seniors rush to claim benefits as early as possible. But there's a downside to filing at 62: reducing your benefits by taking them ahead of full retirement age (FRA).
For today's workers, FRA is either 66, 67, or 66 and a certain number of months -- it all depends on your year of birth. Either way, filing at 62 means taking benefits early and reducing them in the process.
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What sort of reduction are we talking about? If you're looking at an FRA of 67, filing at 62 will slash your benefits by 30%. And unless you happen to undo your application in time, once you lock in that lower benefit, it'll remain in effect for the rest of your life.
Now there are certain circumstances under which claiming benefits at 62 makes sense. But these three reasons for filing early just don't.
1. You're temporarily out of work
Generally speaking, it's a good idea to file for Social Security if you lose your primary income source and don't have the means of covering your bills without it. After all, why rack up costly credit card debt when you could instead start collecting the money you're entitled to and pay your expenses that way?
That said, if your jobless situation is only temporary -- say, you got laid off but aren't ready to retire and are actively searching for a new role -- then it pays to tap other income sources before turning to Social Security. For example, you might be eligible for unemployment benefits, which are designed to replace a portion of your income and generally last up to six months. Or, you might withdraw cash from your emergency fund to tide yourself over until a new job offer comes your way.
Now if you're not eligible for unemployment and have no near-term savings to fall back on, you may have no choice but to file for Social Security. But it pays to explore other options before claiming benefits and possibly lowering them for life.
2. You think your benefits will go back up once you reach full retirement age
Many people think that if they file for Social Security before full retirement age, the reduction they face will only be temporary, and that their benefits will be restored to their full amount once FRA kicks in. Not so. Unless you undo your application for benefits within a year of filing and pay back every dollar you collect, the monthly payments you start receiving at 62 will be what you get for life. So if your plan is to take a hit on benefits for a few years and then enjoy a higher monthly payout later on, that strategy, unfortunately, won't fly.
3. You're worried Social Security is going bankrupt
Many workers and retirees alike worry about Social Security going bankrupt. If you share those concerns, then you may be tempted to file for benefits as early as possible. That way, you get what you can before the program runs out of money.
But contrary to the rumors you may have heard, Social Security is not on the verge of bankruptcy. In a worst-case scenario, the program might need to start cutting benefits in about 16 years if Congress doesn't step in to help address its pending shortfall. But seeing as how so many seniors count on Social Security for the bulk of their retirement income, lawmakers are pretty invested in coming up with a solution. Even if they don't, Social Security gets the bulk of its revenue from payroll taxes, which means that as long as we have a workforce, it can continue paying benefits in some shape or form. To file early for fear of getting nothing, therefore, is a decision that's just not grounded in reality.
Of course, there are certain scenarios where it does pay to claim Social Security as early as possible. If your health is notably poor, for example, then taking benefits early might give you more money in your lifetime. But if you're dealing with a temporary unemployment situation, it pays to explore other options before turning to Social Security. Similarly, if you're thinking of filing at 62 because you're buying into rumors or misinformation, you could end up regretting that decision later on -- so at least do your research before pulling the trigger.
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