Social Security benefits provide income during your golden years, and they become available as early as the age of 62. But if you claim these benefits any time prior to your full retirement age, your monthly benefits will be reduced.
Since I was born after 1960, my full retirement age is 67, as it is for everyone born in or after that year. But despite the fact monthly Social Security checks are reduced by 30% if you claim at 62 with an FRA of 67, I still plan to claim my benefits as soon as I'm eligible. Here's why.
1. My lifetime benefits should be the same no matter when I claim them
One of the biggest reasons I'm planning on claiming benefits at 62 is because I understand that the Social Security system is designed so I'll receive the same total lifetime benefits no matter what age I start getting my checks at.
That's because actuarial tables were used to determine how much to reduce monthly benefits for people who claim early and how much to increase them for people who claim late. So as long as I live to my projected life expectancy, there should be no advantage in waiting to file for retirement income.
Of course, if I outlive my projected lifespan, I'd have been better off waiting to claim benefits as long as possible. This would boost my monthly check, and I'd receive that larger benefit long enough to more than break even for the years of forgone benefits. But I'm not willing to bank on the fact I'll outlive expectations.
2. Social Security benefits are losing buying power
I don't worry about Social Security money running out before I can claim benefits, even though that's a common concern. There's enough money coming into the Social Security system to pay around 75% of promised benefits even if the Social Security trust fund runs dry -- and I don't believe politicians will let that happen.
What does worry me, though, is that the value of Social Security benefits is rapidly eroding because Cost of Living Adjustments (periodic benefit increases also called COLAs) are tied to a measure of inflation that doesn't accurately reflect seniors' rising costs.
COLAs are pegged to a financial index called CPI-W, which measures the expenses of urban wage earners and clerical workers. This index doesn't take into account the fact that seniors tend to spend a disproportionate share of their income on housing and healthcare, the costs of which have outpaced inflation in many recent years.
Since annual Social Security benefit increases aren't really large enough to keep pace with actual cost increases for seniors, I'd rather get my benefits ASAP, before their buying power erodes even further over the years.
3. I want to claim benefits before I'm required to take RMDs
I'm not relying on Social Security benefits alone to fund my retirement. I have money invested in both a traditional 401(k) and a traditional IRA. This means I'll need to begin making withdrawals from these accounts when I'm 70 1/2 or else I'd face penalties. These mandatory withdrawals are determined by Required Minimum Distribution tables from the IRS.
When I'm required to begin making these withdrawals, this will increase my annual income. Social Security benefits aren't taxed until your income hits a certain threshold, but the higher your income, the more of your benefits are subject to tax. Income from my 401(k) or IRA could push me into a higher tax bracket, making my tax bill even higher.
I'd rather start getting Social Security income as soon as possible when I have more control over the amount I withdraw from savings and can keep my tax expenses -- and the portion of benefits taxed -- as low as possible.
62 is the right age for me -- but it may not be the best age for you
These are the key reasons claiming Social Security benefits at 62 is the right choice for me. But your situation may be different, and it may pay for you to wait -- especially if you plan to rely on Social Security for a large portion of your income.
Before you claim benefits, be sure you fully understand how your age at the time of filing affects your monthly income. This will help you make an informed choice so you can get start getting checks at the best age for you.
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