The cliché “good things come to those who wait” resonates well with Americans approaching retirement, as far as Social Security is concerned.
But what about those who cannot wait? Their benefits are cut.
These reduced benefits keep piling up. Your monthly payment can reduce by up to 30% if you start receiving Social Security benefits before reaching full retirement age (FRA).
Yet, according to Gallup research from 2022, many choose to exit the ramp sooner. The study found that although 62 is the earliest age to apply for Social Security benefits, the average retirement age is 61.
But these retirees are not necessarily doing something wrong, even if their monthly payments will be cut by 30% once they turn 62. There are valid reasons to start collecting your Social Security benefits early.
So, under what circumstances should I take Social Security at 62?
You can take Social Security at 62 if you have health issues, need to get out of debt, or need extra income. This post will discuss these reasons for taking Social Security at 62 and their implications.
Should I take Social Security at 62?
The decision to take Social Security benefits at 62 or delay till 70 is entirely up to you. But you may find it helpful to take the benefits early if you:
Have Health Issues
Medical issues are among the top concerns listed in a 2021 Gallup study reported by Experian. Respondents were worried they could become disabled, require an unanticipated surgery, or receive a devastating diagnosis.
Even though you may enjoy an early retirement and have good health, remember that Medicare benefits will not kick in till you are 65.
The problem with unexpected health issues is that they are unexpected. They can be costly too. A steady income stream can mean the difference between being capable of handling any unforeseen events and incurring debts to pay for medical expenses.
Have Debts
If you are wondering, “should I take Social Security at 62?” this is one of the reasons to consider doing so.
Age is not a factor in debt discrimination. According to the Federal Reserve, Americans garnered $18.6 trillion in debt within the first quarter of 2022. The average debt load of individuals aged 55 to 64 was $97,290.
Debt is a severe budget killer, especially if it is unsecured, like on high-interest credit cards. So why keep accruing astronomical interest rates when you can access federal funds?
It is ideal to pay off all debts before you make the retirement decision. Using your Social Security to do away with stubborn credit card bills is thus a good idea.
You can claim cheques for various amounts now and claim reduced benefits afterwards. And if you are still concerned that your cash flow will be too constrained, you can keep working while receiving benefits once you’ve attained full retirement age, which is usually about 66 or 67.
Need Extra Income Now
Applying for Social Security earlier may make sense if you are undergoing financial challenges, like a layoff or substantial expense, and you are at least 62 years old.
The money could help you commence your next stage of life.
For example, you could take Social Security payment if you need it to launch a new business. The income boost could support you while you start your new chapter of earnings.
You can return your Social Security benefit without incurring penalties if you can recover some funds within the first year. That will enable your future Social Security payment to accrue.
Your Partner Earns Enough
You are entitled to half of your spouse’s Social Security benefits if they claim them after reaching your FRA. Take an in-depth and honest look at your income first. You may as well retire and live out your Golden Years fantasies if 50% of your spouse’s income exceeds 100% of your income.
The Downside of Claiming Early: Reduced Benefits
Think about this hypothetical scenario. In 2022, Jessica will be 62. Jessica will receive about $2,000 per month if she opts to collect until she is 67 (her FRA).
However, she will only receive $1,400 per month if she starts collecting benefits at age 62. This permanent “early retirement” penalty lowers her payment by 30% yearly.
Jessica’s monthly benefits would increase by another 24% above the amount she would get at her FRA, to a maximum of $2,480 per month, if she delays until age 70.
Assuming she lived for 89 years, her lifetime benefits would increase to roughly $112,000 or at least 24% because she delayed till age 70 to receive Social Security payments.
Note: All values are in the current currency and before tax. The benefit will be subject to income tax and will likely be adjusted to reflect inflation.
Spouses and Social Security
You may be eligible for Social Security benefits based on your spouse’s work history. If spousal benefits offer a higher payment, applying for benefits on your spouse’s record before reaching your FRA will cost you more.
Overall, that is because the spousal benefits reduction is 35% while the benefit reduction for applying for own benefits is 30%.
If you were Jessica’s spouse in the scenario above and were the same age, for example, you would only be eligible for $650 per month at age 62. That is 35% less than the $1000 per month you would receive at your FRA of 67.
Your decision to start receiving benefits earlier may outlive you. If you pass away before your spouse, they would be entitled to your monthly payment as a survivor benefit—if it is more significant than their own benefit.
However, if you begin receiving benefits sooner—say, at age 62 rather than at age 70—your spouse’s Social Security payment may be reduced by 30% for the rest of their lives.
Bridge to Medicare at Age 65
Remember that even though you can receive Social Security benefits at a reduced rate at age 62, you will not receive Medicare benefits until you turn 65.
You will likely need to buy private health insurance in the meantime. Your Social Security benefits could be significantly reduced as a result.
Financial Benefits of Working Longer
Many individuals wish to retire when it is financially reasonable to do so. But it is crucial to consider the income and investment potential you may lose if you quit working full-time and start receiving Social Security at 62.
It might be impossible to recover that level of remuneration if you leave a well-paying job with benefits, even if you need to go back to work.
Of course, not everyone can continue working, but it is worth considering if you are healthy and given the opportunity to do so, whether full- or part-time.
The monetary benefits of your work may also impact your Social Security payments. Some employers allow stock rewards to keep accruing (payout and, as a result, generate income taxes) well past the retirement date and even into subsequent years.
These payments count as income and may lead to your Social Security benefit being taxed or taxed at a greater rate than in years after the rewards have been distributed fully.
It may be wise to postpone receiving Social Security benefits until those additional sources of income have been declared for tax purposes.
But there is more to the tale. As you get closer to retirement, you are usually at the top of your lifetime earnings trajectory—and of your capacity to increase your retirement savings.
A tax-deferred pension scheme like a 401(k) or 403(b), or the regular IRA allows you to make “catch-up” contributions if you can keep working. You can contribute more money to your retirement account through catch-up contributions.
Keep in mind that if you decide to retire at age 62, you will not have the opportunity to save tax-free. Besides, your benefits will be capped for the rest of your retirement if you choose to start receiving Social Security benefits early.
You will also have a narrower benefit base for COLA adjustments, which may be unfavorable in times of high inflation.
It will be easier to decide whether or not to file for Social Security at age 62 when you take longevity, health care costs, and the cost of your anticipated standard of living in retirement into consideration.
Bottom Line
So, “should I take Social Security at 62?” That entirely depends on you. Waiting until you reach the FRA can help you make the most of your Social Security benefit.
But, if you are willing to scale back professionally, a reasonable compromise would be to retire progressively so that you can take advantage of your good health while still managing your debts responsibly.
Regardless, a disability attorney can assist you in deciding what’s best for you before making any significant decisions.
Contact us at 833-641-1650 to link you up with a Social Security disability attorney today.
