The decision to claim Social Security is not an easy one. Although your monthly benefits are calculated based on your personal earnings history, your filing age also plays a large role in determining how much you will receive each month.
Many seniors are eager to file for benefits as often as possible. But if you make this decision without thinking things through, it will end up costing you in the long run.
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Age 62 is the earliest age you can file for Social Security. But you won’t receive your monthly benefits in full until age 67, which is full retirement age, if you were born in 1960 or later.
It will be interesting to claim your benefits as soon as they are available to you. But know that filing early doesn’t just result in a temporary reduction in your Social Security checks. Rather, this decline is permanent. And it also goes down to smaller heights over time.
Each year, Social Security benefits are eligible for a cost-of-living adjustment, or COLA, so they can keep up with inflation. If you reduce your benefits by filing early, your COLAs will also be smaller.
Here’s an example to illustrate the danger of recording time. Let’s say you qualify for $2,000 in Social Security at full retirement age of 67. If you file at age 62, you will receive $1,400 a month.
Now, let’s say Social Security benefits earn a 3% COLA. If you start with a monthly benefit of $2,000, this COLA is worth $60. If you start with a benefit of $1,400, this COLA is only worth $42.
But when you factor in the impact of COLAs over a 20- or 30-year retirement, the impact is far more significant. So there is real risk in claiming Social Security early unless you have a good reason.
Claiming Social Security early is not always a mistake. But if you’re going to file for benefits before full retirement age, make sure you have a good reason.
Some of the biggest reasons to take advantage early include:
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Losing your job and needing these benefits to get them
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Having poor health and therefore want to file early to increase your lifetime benefits
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Have plenty of retirement savings and want money early to maximize strong health
