You can apply for Social Security benefits as early as age 62. However, there are pros and cons associated with claiming your benefits when you're so young. Here are the advantages and disadvantages of receiving Social Security at 62 and some important things to keep in mind before making your final decision.
First, the disadvantages
Social Security is a critical source of retirement income for millions of Americans, but the amount of money that retirees collect in benefits often falls shy of their total annual expenses.
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In 2018, the average Social Security recipient is collecting $1,404 per month in benefits, which works out to $16,848 per year. That's not a lot of money when you consider that the average retiree household spends over $40,000, according to the Bureau of Labor Statistics.
One reason why retirees' haul from Social Security is so small is that claiming early remains incredibly popular. Workers can begin receiving Social Security as early as age 62, and as fellow Fool Dan Caplinger recently pointed out, over one-third of recipients begin their benefits at that point.
Claiming at age 62 can be smart for various reasons (more on that in a minute), but maximizing benefits isn't one of them. Workers only get 100% of their Social Security benefits if they wait until their full retirement age (FRA), which varies between 66 years old to 67 years old for people born after 1954.
If you apply for your benefits at age 62, then your monthly check will be much smaller than it would be if you wait until FRA. The Social Security Administration reduces your monthly benefit payment by a fixed percentage for every month you claim earlier than FRA, and those monthly penalties can add up. For example, a person born in 1960 has a full retirement age of 67; if they claim benefits at age 62, they'd get 30% less per month than they would get otherwise.
Claiming at age 62 also means forgoing a bonus to your benefit. Social Security rewards those who delay collecting their benefits until age 70 with delayed retirement credits. If you hold off, you can get an 8% increase for every year after full retirement age that you wait.
The difference between the amount you could collect in benefits at age 62 and the amount you could collect if you wait until age 70 to apply for benefits is significant. Assuming a full retirement age of 67 and a full retirement age benefit of $1,000, a person who claims at age 62 would only receive $700 per month, while a person who claims at age 70 would receive $1,240 per month. In this scenario, claiming at age 70 results in a monthly check that's a whopping 77% bigger than the check they'd receive at age 62.
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The advantages of claiming early
A lot goes into deciding when it's best to apply for Social Security, and at the top of any list should be health and retirement goals. The average 62-year-old man and woman have an average remaining life expectancy of 20 years and 22.8 years, respectively, according to Social Security's life expectancy table. However, many people will pass away younger than the average life expectancy.
The probability of someone age 62 passing away within one year is only 1.3%, but the probability of dying increases dramatically as we get older, climbing to 2.3% at age 70 and 5.9% at age 80. Overall, there's about a 40% chance a 60-year-old man won't reach age 80, based on 2015 data.
Of course, plenty of people live longer than average, too, but the reality is that if you're concerned about your health, claiming early can provide valuable income that allows you to achieve your retirement goals, such as travel, while you're healthy enough to enjoy it. It also may provide more in total lifetime benefits than if you wait to claim, particularly if you have additional sources of retirement income and can afford to stash some of your Social Security income in stocks or bonds.
As you can see in the following break-even analysis chart, a person with a full retirement age of 67 will collect more in lifetime Social Security benefits if they claim at age 62 instead of age 70 up until they reach their late 70s. Investing a portion of Social Security income could make the break-even point even later in life if that investment generates a positive return.
Chart by Author.
In addition to your health and retirement goals, your decision will depend on your plan to continue working (or not working) in retirement, your expected retirement expenses, and other sources of retirement income. You should also consider the age of your children and your spouse's health.
If you claim at age 62 and you continue working, you could have some of your Social Security held back until full retirement age if you fail Social Security's earnings test. Also, up to 85% of your Social Security could become subject to income taxes if your income exceeds limits. Furthermore, if your spouse qualifies for spousal benefits, the amount your spouse will collect in benefits after you're gone will be smaller if you claim at age 62.
Ultimately, the best age to apply for Social Security depends on your specific situation, so make sure you understand your options before making your final decision.
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