Many people dream of retiring early and claiming Social Security benefits as soon as possible. But claiming benefits before your full retirement age results in a permanent reduction in monthly income that can add up to a significant loss over your lifetime. Here is how retiring at 62 could impact your Social Security benefits compared to waiting until 65 or later.
Social Security Eligibility When You Retire at 62
Americans aged 62 or older are eligible to claim Social Security retirement benefits. Age 62 is the earliest age you can begin receiving benefits as a potentail retiree.
For anyone born in 1960 or later, the full retirement age is 67. Claiming at 62 is 60 months before your full retirement age, making you eligible for early Social Security benefits.
However, just because you can take benefits at 62 does not mean doing so is always the best strategy. Claiming five years early leads to a lifetime reduction in monthly and overall retirement income.
Benefits are Permanently Reduced When Claimed Early
Taking Social Security before your designated full retirement age results in up to a 30% cut in monthly benefits. The reduction will be permanent for the rest of your life.
For every month you claim benefits before reaching full retirement age, your benefit rate is reduced by:
- 5/9ths of 1% per month for the first 36 months (adds up to 20% reduction at 3 years)
- 5/12ths of 1% for each additional month before your full retirement age (up to 30% max reduction)
So claiming at age 62 causes a 30% reduction if your full retirement age is 67. This is a significant decrease that can really reduce retirement income or lifetime earnings long-term if you claim the maximum Social Security benefit too early.
Age 62 Retirement Age Cuts Monthly Benefit
For example, let’s say your full monthly benefit at age 67 is $1,500 per month or $18,000 per year.
If you instead claim benefits at age 62, your monthly amount is cut by 30% down to $1,050 per month or $12,600 per year.
That is a difference of $450 per month or $5,400 less in annual income by taking Social Security five years early at age 62. This reduction remains permanent for your entire retirement.
The reduction is smaller if your full retirement age is 66 instead of 67. Claiming at 62 cuts benefits 25% instead of 30% in that situation.
Either way, claiming decades earlier than your designated full retirement age means receiving significantly lower monthly Social Security income that can strain retirement finances.
Lifetime Benefits Can Be Reduced by $100,000+
While the reduction in monthly income may seem manageable early in retirement, the compound effect over your lifetime is substantial.
By claiming five years early at age 62, you could miss out on $100,000 or more in total lifetime Social Security benefits compared to waiting until full retirement age or later.
For example, if your benefit at age 67 is $18,000 per year:
- Claiming at 62: $12,600 per year x 25 years = $315,000 lifetime
- Waiting until 67: $18,000 per year x 20 years = $360,000 lifetime
- Difference of $45,000 in lifetime benefits
For the highest earners receiving maximum benefits, the difference between claiming at 62 vs 67 could be over $250,000 in lifetime Social Security income.
Impact on Spousal and Survivor Benefits
Claiming early also reduces potential spousal and survivor benefits for your current or future spouse. Their benefit is reduced by a percentage based on when you claim Social Security.
By waiting until full retirement age to take benefits, you ensure your spouse will receive the maximum survivor benefit in the event of your passing.
Other Retirement Income Sources Go Further
If you wait until full retirement age of 66 or 67 to claim Social Security, other income sources like retirement savings may last longer into old age.
Getting larger Social Security checks later helps retirement accounts stretch because you withdraw less in earlier years. This maximizes your total retirement income when considering both Social Security and savings.
Delaying Social Security essentially provides you a boost in guaranteed income later when you are more likely to need it in advanced age.
Key Factors to Consider Before You Claim Social Security at 62
- Health and longevity – If you have medical issues or lower life expectancy, claiming early may make sense to get some benefits. If you are in good health, delaying may allow larger checks later in retirement.
- Spousal benefits – Coordinating with your spouse to maximize combined lifetime benefits from Social Security.
- Other retirement income – Whether you have enough income from pensions, savings, or part-time work to delay Social Security.
- Break-even analysis – Comparing total lifetime benefits from different claiming ages, factoring in life expectancy.
- Work status – Social Security benefits are reduced if you earn over the annual limit of $19,560 in 2023 before full retirement age.
Weigh Pros and Cons of Early Retirement Carefully
While wanting to retire comfortably at 62 is understandable, claiming Social Security that early may undermine your retirement security. Look at your entire financial situation and future earnings potential before deciding when to claim benefits.
In many cases, waiting a few years beyond 62 to take Social Security can boost your monthly income by hundreds of dollars for the rest of your life. This adds up to tens of thousands in extra lifetime benefits. Know the tradeoffs before finalizing an early retirement plan that relies too heavily on Social Security claimed well before full retirement age.
We’re Here to Help
You do not have to spend hours reading articles on the internet to get answers to your Medicare questions. Give the licensed insurance agents at Glidden Group a Call at (208) 962-0077. You will get the answers you seek in a matter of minutes, with no pressure and no sales pitch. We are truly here to help.
What is the earliest age I can start receiving Social Security benefits?
You can start benefits as early as age 62, which is the earliest age to claim retirement benefits. However, starting this early results in a reduction.
How much could my Social Security benefit be reduced by claiming early?
Claiming Social Security administration benefits before age 65 or your full retirement age could reduce your primary insurance amount by as much as 30% if you claim at age 62 when your FRA is 67.
What is the normal retirement age for Social Security?
The full retirement age was 65 for many years. But it has increased with big changes to Social Security, so it is now age 66-67 depending on your birth year.
Should I take benefits early at age 62 or wait until full retirement age?
Claiming Social Security at 62 provides benefits earlier but permanently reduces them. Waiting until your FRA results in higher monthly benefits when you do start.
Can I retire and collect Social Security benefits starting at age 62?
Yes, you can choose to retire and start collecting reduced Social Security retirement benefits as early as age 62, but your benefits will be decreased.
How much income can I earn if I retire early and claim Social Security at 62?
If you retire early and claim benefits at 62, the retirement earnings test could affect how much income you can earn before your FRA without reductions.
What is the delayed retirement credit if I wait to claim after age 67?
Delaying retirement benefits past your FRA earns delayed retirement credits that increase your monthly benefit by 8% per year up to age 70.
How do survivor benefits change if I claim Social Security early?
Claiming early at age 62 reduces your own benefit amount, which then reduces potential future survivor benefits for your spouse if you die first.
Should I take Social Security early at 62 and invest the money?
This retirement strategy of claiming benefits at 62 to invest could provide more income depending on your investments’ returns compared to delaying benefits.
What are the pros and cons of starting Social Security retirement benefits at age 62?
Pros are more years of benefits, but cons are permanently reduced benefits and potentially insufficient income in later retirement years after other assets are depleted. Consider carefully.