The decision to file for Social Security isn't an easy one, since the age you claim benefits at will dictate how much monthly income you receive for the rest of your life. If you opt to sign up for Social Security at full retirement age (FRA), you'll get the exact monthly benefit your personal earnings history entitles you to. FRA is either 66, 67, or somewhere in between, depending on your year of birth.
Of course, you don't have to file for benefits at your precise FRA; you're allowed to sign up as early as age 62. But for each month you claim Social Security ahead of FRA, your monthly benefit will shrink on a permanent basis, leaving you with less income to enjoy.
Now you'll often hear that it's a good idea to file for Social Security at FRA or beyond (delaying benefits will boost them by 8% a year, up until age 70), as that will help ensure that you don't wind up cash-strapped as a senior. But actually, it often pays to claim benefits well before FRA. Here are three reasons why.
1. You don't know how long you're going to live
One lesser-known fact about Social Security is that it's technically designed to pay you the same lifetime benefit (not monthly benefit) regardless of when you initially sign up for it. Think about it this way: If you file early, you'll get less money each month, but more months of benefits. File at FRA or later, and you'll get more money each month, but fewer months of benefits.
Either way, you should break even regardless of whether you file early, on time, or late as long as you live an average lifespan. But what if you don't?
Nobody can predict the future, and if you don't end up living a very long life, you'll come out ahead financially by virtue of claiming benefits early. If your health is poor going into retirement, it especially pays to sign up for Social Security before FRA, because that way, if you pass away at a relatively young age, you'll end up securing the most lifetime income in the process.
2. You don't have enough income to pay your bills
Some seniors are forced to retire before reaching FRA. If that happens to you, and you don't have enough money to cover your living expenses, then it absolutely pays to sign up for Social Security early, even if it means accepting a lower monthly benefit. If you don't file for benefits in that scenario, you'll risk racking up costly debt in an effort to stay afloat. You may even be forced to sell the home you love and want to spend your retirement in. And it's not worth doing any of those things when the option to claim Social Security early exists.
3. You can use that money to improve your financial picture in retirement
Some seniors file for Social Security early out of desperation. But what if you're in a decent spot financially, only you want your benefits so you can start a business that generates a healthy income stream for you throughout retirement? If claiming benefits ahead of FRA allows you to kick-start a lucrative venture, you may find that the money it brings in more than compensates for a lower ongoing monthly benefit, and that way, you'll also have something fulfilling to do with your time once your main career comes to a close.
Filing for Social Security early is often associated with taking a long-term financial hit. But that's not always the case. Depending on your circumstances, you may come out ahead financially by claiming benefits before FRA, so don't assume that signing up for benefits early is a big mistake like so many make it out to be.