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3 Great Reasons to Take Social Security Benefits at 62

Maurie Backman, The Motley Fool

There's a reason 62 happens to be the most popular age to claim Social Security: It's the earliest age you're allowed to get at those benefits. But while the idea of snagging your cash sooner might seem appealing, you should know that there's one major drawback to filing at 62, and it's that doing so will reduce your monthly benefits -- for life.

Though your Social Security benefits themselves are based on what you earned during your 35 highest years of income, you'll only collect your benefits in full if you wait until full retirement age to claim them. For today's older workers, full retirement age falls somewhere between 66 and 67, and for every year you take benefits early, you lose a percentage of what you'd otherwise collect. That's why it's often a good idea to wait until full retirement age to file for Social Security.

Older man squinting at a newspaper and talking on the phone

IMAGE SOURCE: GETTY IMAGES.

That said, there are certain scenarios where taking benefits at 62 makes sense. Here are some that might apply to you.

1. You're desperate for cash

We just talked about the fact that claiming Social Security early will cause your monthly payments to go down. But what if you reach 62 and suddenly find yourself in a situation where you need money and don't have many options?

It happens more often than you'd think. According to Voya Financial, 60% of Americans wind up retiring earlier than planned, and the reasons run the gamut from poor health to job loss. If you're laid off at 62, for example, and don't have enough savings to cover your living expenses, you're basically looking at two choices: rack up costly credit card debt, or take Social Security early. And of those, the latter is the much better option.

2. You don't need the cash

Just as being desperate for money is a good reason to file for Social Security at 62, the opposite is also true. If you don't need your benefits right away, but rather want the money to supplement what's already a healthy amount of retirement income, then you might as well start collecting Social Security so you can use that cash as you please.

Imagine you retire at 62 with a substantial nest egg -- enough to cover your living costs, but perhaps not quite enough to allow you to jet set around the globe. If taking your benefits early means getting to travel when you're younger, and are apt to have more energy to enjoy it, then it pays to take your money sooner.

3. You don't expect to live a long life

Even though you'll face a reduction in benefits by filing at 62, the interesting thing about Social Security is that it's designed to pay you the same amount in lifetime benefits regardless of when you first file. Think about it: Taking benefits early will reduce each individual payment you collect, but you'll also get more payments in your lifetime, so eventually, things will even out.

There is a catch, however. This formula assumes that you end up living an average life expectancy. Therefore, if your health is poor, and you don't expect to live very long, you'll typically come out ahead by filing for Social Security as soon as you possibly can.

Here's an example. Say your full retirement age is 66, at which point you'd be eligible for $1,500 a month in benefits. If you file for Social Security at 62 instead, you'll knock each monthly payment down to $1,125, but you'll collect 48 more payments than you would by waiting until 66. Now if you happen to live until 78, you'll come out with the exact same total Social Security payout -- $216,000. But if you pass away before 78, you'll end up getting less money in your lifetime.

Of course, in the absence of a crystal ball, it's impossible to say how long each of us will live. But if you have a known medical condition that's likely to shorten your life expectancy, then it pays to file for benefits the moment you become eligible.

Although taking Social Security at 62 means slashing your monthly benefits, it sometimes pays to take that hit and collect your cash sooner. You've earned that income, so you might as well take it in a manner that'll benefit you the most.

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