Financial Impact Of Claiming Social Security Benefits At 62 - Retirement Planning

Social Security is a federal retirement program that offers retirement and disability benefits to qualified retirees. It also provides financial assistance and support to spouses and children of qualified retirees. It is administered by the Social Security Administration (SSA) and operates through collecting payroll taxes from workers. Social Security also offers disability benefits under the Social Security Disability Insurance (SSDI) and survivor benefits. To be eligible for Social Security, workers must be a part of the program and have contributed to it for at least ten years. They should also be at least 62 years or older at the time of their first claim.

While filing for Social Security at 62 is permitted, it is often advised to delay claiming these benefits. A financial advisor can help you understand the potential advantages of delaying your withdrawals. This article will also discuss the benefits of late withdrawals and how to plan your Social Security benefits for optimum returns.

Should you apply for Social Security at 62?

62 is the lowest age for claiming Social Security benefits. However, withdrawals at the age of 62 can result in a reduction in the amount of your monthly benefit compared to waiting until your full retirement age. The full retirement age for claiming Social Security benefits depends on the year you were born. If you were born between 1943 and 1954, your full retirement age would be 66 years. If you were born in 1960 or later, your full retirement age would be 67 years. Now if you decide to withdraw your benefits at the age of 62, before you reach your full retirement age, you will receive a lower Social Security benefits check in comparison.

How much money will you get from Social Security if you apply early?

The minimum social security benefit at 62 can range from $49.40 for people with 11 years of coverage to $1,033.50 for people with 30 years of coverage as of 2023. These values are relatively lower than if these workers claim their benefits at their full retirement age. Generally speaking, retiring at age 62 typically leads to a substantial decrease in monthly benefits.

Consider a scenario where the primary insurance amount is $1,000 per month, and both the primary worker and their spouse retire at their respective full retirement ages. If both the primary worker and their spouse retire at age 62, their benefits would be reduced. The exact reduction amount depends on their full retirement age and the number of months they retire early. Here’s how this will likely pan out:

Social Security early retirement penalty chart

Year of birth	Normal (or full) retirement age	Number of reduction months	Primary		Spouse
Year of birth	Normal (or full) retirement age	Number of reduction months	Amount	Percent reduction	Amount	Percent reduction
1937 or earlier	65	36	$800	20.00%	$375	25.00%
1938	65 and 2 months	38	791	20.83%	370	25.83%
1939	65 and 4 months	40	783	21.67%	366	26.67%
1940	65 and 6 months	42	775	22.50%	362	27.50%
1941	65 and 8 months	44	766	23.33%	358	28.33%
1942	65 and 10 months	46	758	24.17%	354	29.17%
1943-1954	66	48	750	25.00%	350	30.00%
1955	66 and 2 months	50	741	25.83%	345	30.83%
1956	66 and 4 months	52	733	26.67%	341	31.67%
1957	66 and 6 months	54	725	27.50%	337	32.50%
1958	66 and 8 months	56	716	28.33%	333	33.33%
1959	66 and 10 months	58	708	29.17%	329	34.17%
1960 and later	67	60	700	30.00%	325	35.00%

If a primary worker chooses to retire at their full retirement age, they would receive $1,000 per month, and their spouse would receive $500 per month.

As you can see, retiring at the age of 62 typically leads to a substantial decrease in your monthly benefits compared to waiting until your full retirement age. Therefore, it is essential to consider the long-term impact of these reductions and carefully evaluate your financial situation before deciding when to claim Social Security benefits.

However, deciding when your Social Security checks will benefit you the most is not as straightforward or limited to just your age. There are several factors to consider. Your lifespan can affect whether or not your withdrawals suffice for your needs. If you have a shorter lifespan and live until your early 70s, you will receive monthly benefits for a shorter period. In this case, even though your benefit amount is reduced, you would still accumulate a larger total lifetime benefit than waiting until your full retirement age to claim the monthly check. So, claiming benefits early would benefit you in the long run.

On the other hand, if you live into your 80s or 90s, you will receive benefits for a longer period. In this case, waiting until your full retirement age to claim your benefits would result in a higher total lifetime benefit, despite the reduced monthly amount. Hence, claiming early would result in a smaller total benefit over the course of your life.

Before you decide on the right age for Social Security, it is crucial to understand the pros and cons of your decision.

Pros of taking Social Security early

Here are some potential advantages of claiming Social Security early:

1. You will receive an immediate income

If you claim your Social Security benefits early, you start receiving a monthly income right away. This can be particularly beneficial if you need the money to cover any immediate goals. Social Security income can supplement your living expenses and help you cover any financial emergencies in retirement. The more liquidity you have in retirement, the easier it gets to manage multiple financial needs. It also adds a sense of security and comfort, knowing you have enough funds at your disposal and do not necessarily need to think before spending.

2. You have greater flexibility for personal goals

Claiming benefits early provides flexibility in managing your retirement income. You can use the additional funds to pursue your hobbies, travel the world, purchase items from your pending wish lists, etc. A lot of people look forward to their retirement to be able to do the things they never had the time for. You can pursue these personal goals by drawing your Social Security benefits early.

3. You can retire early

If you wish to retire early, claiming Social Security benefits early can provide you with a source of income to support your lifestyle during this period. More and more people are choosing to retire early these days. Early retirement can be personally fulfilling and rewarding. However, it requires multiple income streams, such as Social Security, annuities, pensions, retirement plans, investment returns, etc. In this case, withdrawing your Social Security benefits early can offer you a substantial advantage.

4. You have more funds for essentials such as healthcare

People with health considerations can particularly benefit from claiming Social Security benefits early. If you have health concerns, claiming benefits early ensures you have enough money to cover your expenses, such as hospital visits, prescription drugs, vaccines, long-term care, nursing homes, etc. Claiming Social Security benefits early can also be advised if you anticipate a shorter life expectancy. In such a scenario, this ensures that you receive a significant portion of your entitled benefits during your lifetime.

5. You do not risk losing your money

The future sustainability and longevity of the Social Security program have been a topic of discussion for some time. There is speculation that Social Security reserves will be depleted by 2034, and retirees will receive approximately 78% of their full benefit in the future. It is hard to say how long the program can survive and whether the present generations of Generation X, Millennials, and Generation Z will benefit from it as the previous generations. Therefore, early withdrawals may be able to offer you guaranteed financial security.

Cons of taking Social Security early

Here are the potential cons of claiming Social Security early:

1. Your monthly benefits are significantly reduced

Filing for Social Security at 62 reduces your monthly check considerably, as this reflects in all of your checks for as long as you live. The reduction can be as high as 25% to 30% if you claim your first check at the age of 62 years. This is a permanent reduction that will reflect for the rest of your life.

2. Your total lifetime benefits will be impacted

Claiming benefits early reduces your total lifetime benefit compared to waiting until your full retirement age. You get less money on a dollar basis from all Social Security Cost-Of-Living Adjustments (COLA) in the future. If you expect to live a longer life, waiting to claim benefits can potentially result in a higher cumulative benefit amount over time.

3. You may lose some benefits if you continue to work

If you apply for Social Security at 62 and choose work simultaneously, you can lose some of your benefits. Here’s how this works in 2023:

If you are under the full retirement age for the entire year, $1 will be deducted from your benefit payments for every $2 you earn above the limit. In 2023, the limit is $21,240.

In the year you reach full retirement age, the deduction changes to $1 for every $3 earned above a specific limit. In 2023, that limit is $56,520. However, this only applies to earnings up until the month before reaching the full retirement age.

It is essential to be aware of these earnings limits and how they can affect your Social Security benefits if you plan to continue working before reaching your full retirement age and wish to withdraw your benefits too.

4. Claiming benefits early impacts your spousal and survivor benefits

Spousal benefits are designed to provide a source of income for spouses, while survivor benefits are given to surviving widows and widowers. Claiming benefits early can affect spousal and survivor benefits, too. If you claim your check at 62, the amount that your spouse gets under spousal benefits is also reduced. Early withdrawals can impact future financial security if you have dependents, such as a spouse or a child. Therefore, it is vital to consider the impact of your decision.

5. You may not be able to change your decision

Social Security benefits offer limited options to readjust your withdrawals. If you later regret claiming benefits early, you can apply for a withdrawal of benefits. This option is only available if you are in your first year of collecting Social Security benefits. If you have been withdrawing your retirement benefits for more than a year, you cannot apply for a withdrawal of benefits. In this case, you must wait until you reach your full retirement age to request a suspension of benefits again.

What is the ideal age to withdraw your Social Security benefits?

It may be advised to wait till your full retirement age to maximize your benefits. This will ensure you get a higher monthly check and may offer better long-term financial security. According to the Journal of Financial Planning by Wade Pfau and Steve Parrish, delaying claiming your Social Security benefits until the age of 70 years can increase your monthly benefits by 77% in inflation-adjusted terms.

Having said that, everyone’s situation and financial needs are different, and claiming Social Security benefits does not necessarily hamper your retirement financial security. In some cases, where the person’s lifespan is short, claiming it early can be more advantageous. The right choice can only be made after carefully and thoroughly evaluating your goals.

To conclude

Claiming Social Security benefits at the age of 62 may result in a financial loss compared to waiting until your full retirement age or even beyond. However, it is essential to note that your decision to claim Social Security benefits should not be solely based on this potential loss. Evaluating the long-term implications and weighing the pros and cons of claiming benefits at 62 is crucial. It is also advised to use Social Security calculators to understand the consequences of your decisions. Additionally, you can consult with a financial advisor to know more.

Use the free advisor match service to find a financial advisor who can help you make an informed decision concerning Social Security that aligns with your overall financial goals and retirement strategy. Simply answer a few straightforward questions about your financial needs, and our match tool will connect you with 1-3 advisors who are most suitable for meeting your financial goals.