Those born in 1963 will reach an important Social Security milestone this year: They'll finally turn 62 and become eligible to claim benefits after paying into the program their entire career.
It's tempting to want to apply right away so you can get as many checks as possible. But that might not be the best move for you financially. Sometimes, waiting to apply can actually earn you more money overall.
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Social Security's full retirement age (FRA) and why it matters
The Social Security Administration assigns everyone a full retirement age (FRA) based on their birth year. In the past, it was as low as 65. But it slowly creeped up until it reached 67 for those born in 1960 and later.
The benefit you qualify for at your FRA is known as your primary insurance amount (PIA). If you apply at any other age, the government adjusts your PIA up or down. You lose 5/9 of 1% per month for up to 36 months of early claiming, then 5/12 of 1% per month thereafter. That means signing up for Social Security at 62 could reduce your checks by up to 30%.
If you qualified for a $2,000 PIA at your FRA of 67, applying immediately at 62 would drop it to $1,400. That would give you $7,200 less over the course of a year. Some people mistakenly believe this only continues until you reach your FRA at which point the government gives you your PIA, but this isn't true. Most people continue to receive the same benefit, with small adjustments for inflation, for the remainder of their lives.
So claiming early means more, but smaller checks while delaying benefits gives you bigger checks, but fewer of them. This doesn't end when you turn 67 either. You can continue to delay benefits until you turn 70 and your checks will grow by 2/3 of 1% per month. That could increase your monthly benefit to 124% of your PIA, or about $2,480 if you had a $2,000 PIA.
Choosing the claiming age that's right for you
While it's true that delaying your Social Security application increases the size of your monthly checks, that doesn't always mean it's the right decision for you. Your optimal claiming age depends on your financial situation and your life expectancy.
Delaying benefits is only possible if you have other sources of retirement income you can rely upon until you're ready to sign up for benefits. This could work if you have substantial savings or if you plan to work until your FRA or later. But for some, it's not an option. If delaying Social Security would cause you to incur debts now, it's not worth it.
When that's not an issue, life expectancy usually settles the question of the best claiming age. Those with short life expectancies who don't think they'll live past their 70s usually do best by applying early. Otherwise, most people come out ahead by delaying their Social Security claim as long as possible.
It's ultimately your call, though. Think through all your options and choose the claiming age you believe makes the most sense for you right now. If that's 62, that's fine. Just make sure you're comfortable with the consequences of your decision.
