The fact that seniors get to choose their Social Security filing age can be both a blessing and a curse. On one hand, it's nice to have the flexibility to get your money sooner if that need arises. On the other hand, the option to file early could cause seniors a world of long-term financial distress.
When we talk about claiming Social Security early, we mean signing up before reaching full retirement age (FRA), which is 66, 67, or somewhere in between, depending on the year of your birth.
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Meanwhile, the earliest age at which you can sign up for Social Security is 62. And it can be tempting to file early for a variety of reasons, the most basic of which is to simply have that money sooner.
However, for each month Social Security is claimed prior to FRA, the associated monthly benefit is reduced. And filing at age 62 with an FRA of 67 means having to accept a 30% reduction in benefits -- usually for life.
You might think that claiming Social Security early is a smart bet for you. However, in a recent Nationwide survey, among those who opted to sign up for Social Security early, 42% said it harmed them financially. As such, you may want to consider the drawbacks of getting your benefits before reaching FRA.
A lower monthly benefit could hurt you
It's easy to see why you'd be inclined to start collecting Social Security as soon as you're able to. And if you're in a position where you're forced to retire at a younger age than planned, you may have no choice but to fall back on Social Security to cover your living expenses.
But if you have the option to wait until FRA to claim Social Security, you should at least consider it. Ideally, you'll be entering retirement with some amount of money in savings. But how long will your savings actually last?
It's hard to know. And even if you spend your savings carefully, you technically run the risk of depleting your nest egg eventually.
The nice thing about Social Security is that once you lock in your monthly benefit at the time you file, you're guaranteed that monthly payment for life (not accounting for potential widespread benefit cuts). If you file for Social Security early, you're basically signing up for less income permanently. And that could prove problematic if your savings run out.
Similarly, many seniors find that their living costs in retirement are higher than expected. Having more income from Social Security could make your bills easier to manage, whereas a reduced monthly benefit from an early filing might leave you to struggle.
Hold out as long as you can
You may not be in a position to wait until FRA to claim Social Security. But at the very least, do what you can to sign up for benefits after age 62 if you're not super confident in the amount of savings you're bringing into retirement.
If you claim Social Security at age 64, for example, you'll slash your monthly benefit by 20% if your FRA is 67. But a 20% hit is better than the 30% hit you'd take by filing for Social Security at 62 in that scenario.
Of course, it's also worth noting that, according to the survey above, 29% of people who claimed Social Security early said it worked out well for them. And 30% said it made no difference. So depending on your circumstances, an early Social Security claim could make sense, such as if you have a multimillion-dollar nest egg to tap.
Otherwise, proceed with caution when filing for benefits early. And consider what you have to gain financially by waiting.
