Applying for social security at 62? You might regret it

Retirement is like a long vacation in Las Vegas. The goal is to make the most of it, but not to the point of running out of money. — attributed to Jonathan Clements

We all want to enjoy our retirement and none of us want to run out of money. So it’s a tricky thing to decide when, exactly, to retire. There are also many decisions related to this, such as when to stop working altogether, work part-time in retirement for a few years, and when to start collecting Social Security. You can start receiving Social Security retirement benefits from age 62 until age 70. (You can claim over 70, but there’s no upside to that.)

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The most common age at which people start the Social Security income train is 62. Here are a few reasons why you might not want to.

1. Starting at 62 means smaller checks

The key thing to understand about starting to collect your Social Security benefits early is that it will reduce checks — just like delaying the start of collecting them beyond your “full retirement age(66 or 67 for most of us) will make them fatter. Indeed, if you expected to get $1,000 a month starting at age 67, starting at age 62 would reduce that benefit to $700, while that delaying until age 70 would drop it to $700. $1,240, a drop of almost 44% if you choose to start at age 62 instead of 70.

These differences are not really enough so hard, though. Starting early means smaller checks, but you’ll get a lot more, and starting late means bigger checks, but fewer. The system is designed so that those living in the middle get roughly the same amount, in total, from the program no matter when they start writing the checks.

2. Starting at 62 means smaller COLA increases

This detail may be obvious, but many people don’t think about it. Most years, Social Security benefits receive a “cost of living adjustment” or “COLA.” There was a big one, 5.9%, in 2021, which followed the 1.3% in 2020. Some years it’s zero. But regardless of the increase, the bigger your check, the more extra dollars you’ll receive.

For example, consider that the monthly average Social Security Retirement Benefit was recently $1,666 (about $20,000) per year. If it increases by 5.9%, it becomes $1,764, an increase of $98. Now imagine that you received a smaller amount because you started receiving Social Security earlier. If your benefit was $1,200, the 5.9% markup would increase the size of your checks by almost $71, or about $27 less than with the larger check. Over 12 months, this difference of $27 will total $324. Over the years, the lost potential income will increase.

3. Early retirement can cost you dearly

Finally, retiring around age 62 could have undesirable consequences. It means your retirement will be longer, yes, but it also means your nest egg will have to sustain you for more years. Delaying retirement — and delaying the start of Social Security collection — can mean a few more years for you saving and investing for retirementbigger Social Security checks, a bigger nest egg that will have to sustain you for fewer years, and maybe a few more years on your employer’s health insurance plan.

Remember that Medicare coverage is available from age 65, so retiring at age 62 means you may have to pay significantly more for health care for a while. Plus, while you’re working and not yet on Medicare, you (and your employer) can contribute more to your Health Savings Account (HSA) – and that can mean more money available to pay for healthcare expenses in a tax-efficient way.

Reasons to Start Collecting Social Security Benefits Earlier

Despite all the above issues, there are still good scenarios in which to start collecting your benefits early. For example:

  • You have a decent chance of living a shorter than average life, in which case starting to collect soon will net you more benefit dollars, in total.
  • You need to retire early to take care of a loved one and all you need is an income.
  • You want to retire early so you can enjoy a longer retirement, and you can afford it.
  • You have been forced out of the workforce and are retiring earlier than by choice.

Decision-making will be different for each of us, so take the time to learn more about social security so you can make the best choices for you and your family.

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