You’ll often hear that it’s a bad idea to sign up for Social Security at age 62. The reason? This results in a lower monthly benefit for the rest of your pension.
You are eligible for your full monthly benefit based on your income history once you full retirement age. FRA is 66, 67 or somewhere in between, depending on when you were born.
If you claim Social Security at age 62, your benefits are reduced by 25% to 30%, depending on your specific FRA. And that’s a pretty big hit to take. Nevertheless, under these circumstances it makes sense to apply for benefits at the age of 62.
1. You want
If you retire with a multi-million dollar nest eggThen chances are your savings are your primary source of income. And if that’s the case, you’ve basically earned the right to apply for Social Security whenever you want, since those benefits will really just be a secondary source of income for you.
In fact, you may be in a position where your Social Security benefits are only used for leisure activities. And if so, you should feel free to claim those benefits regardless of the age that works for you.
2. You must
You may not want to claim Social Security at age 62 because you’d rather have a higher monthly benefit to look forward to. But if you’re fired at age 62, you may need to claim benefits if you can’t get a new job.
Unfortunately, it can become more difficult to get hired later in life. While it is illegal to refuse a job based on age, it is also difficult to prove. And so if you find yourself out of a job at age 62, claiming Social Security may be your only option to replace your lost paycheck.
Even if you are not forced by your employer, health problems can force you to retire early. And if so, you may need to claim benefits at age 62 to make sure you have enough income to cover your expenses.
3. You can turn that money into a continuous income stream
Some people file for Social Security early with the intention of investing that money in stocks and growing it into a larger amount. That’s a somewhat risky prospect, though, as you’ll need to generate a high enough return to outweigh the blow you’ll get from claiming a distribution early.
On the other hand, if you apply for Social Security at age 62 and use your benefits as seed capital to start a business, you may be generating more than enough income to offset a lower benefit. This is especially true if you’ve laid out a business plan and have smart management skills.
What is the right decision for you?
Claiming Social Security at age 62 doesn’t make sense to everyone. If you’re low on retirement savings and have the ability to work well into your 60s, getting a higher benefit and avoiding a financial crisis during your senior years may pay off. Likewise, if you enjoy your job and can keep it up, you might as well wait to claim Social Security so your monthly benefit can grow.
But if the above scenarios apply to you, filing for Social Security as early as possible is a step that could serve you very well. And so it pays to think about the benefits of claiming benefits once your 62nd birthday arrives.