Age 62 has long been a popular one among seniors when it comes to Social Security. That's because it's the earliest age to start receiving a monthly benefit.
You're entitled to your full monthly Social Security based on your personal earnings history at full retirement age, or FRA. That age hinges on your year of birth, and if you were born in 1960 or later, it's 67.
In fact, if you're looking at an FRA of 67, a Social Security claim at 62 will result in a 30% reduction to your monthly benefit. That's something you may be aware of already. But you may not realize just how much a reduced benefit might hurt you down the line.
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When your savings just don't have staying power
Northwestern Mutual says that the average 60-something today has a retirement savings balance of $112,500. Now if you're sitting on 15 to 20 times that sum, then you may be perfectly fine to claim Social Security at age 62. But if your savings balance is closer to $112,500, then filing for benefits at 62 is probably not a wise move unless you're grappling with major health issues that are likely to shorten your life expectancy substantially.
There's no guarantee that a larger nest egg won't run out on you eventually. But if you're only retiring with a little more than $100,000, then there's a good chance that money won't last very long. It might, in fact, run out on you within a decade depending on factors that include your lifestyle choices and unexpected bills.
If you slash your monthly Social Security benefit by claiming it at 62, you'll have that much less income to look forward to once your nest egg has run dry. And that reduction could spell the difference between managing OK and struggling financially.
Let's say you'd normally get a Social Security benefit of $2,000 at an FRA of 67, only you sign up at 62 instead, leaving yourself with just $1,400 a month. Which position would you rather be in once you run out of savings -- awaiting a $2,000 monthly paycheck or just $1,400?
Remember, you might think your retirement expenses will decline as you age, since you may not get out and about as much. But while you might spend less on entertainment, your healthcare costs might rise. So slashing your monthly Social Security benefit for life by filing early is something you may want to strongly reconsider.
Assess your savings before signing up for benefits early
The idea of filing for Social Security at 62 is certainly tempting. And it's easy to see why you'd want access to your money as soon as possible.
But before you sign up for benefits at 62, look at your savings balance and be realistic about how long your money will last. If you have reason to believe that you'll end up depleting your nest egg in your lifetime, then it pays to hold off on Social Security so you'll at least have that higher income stream once your savings run out.
