Deciding when to sign up for Social Security is difficult. File too early, and your benefits for life will shrink. File in later, and you will reap a higher monthly benefit, but you may not live a long enough life to make it worthwhile.
You are entitled to your full monthly benefit based on your history of income once you reach what is known as full retirement age (FRA). That age is 66, 67 or 66 and a specific number of months, depending on the year you were born.
Meanwhile, the first age to sign up for Social Security is 62, and it is also the most chosen age. Submitting at 62 reduces your monthly benefit by anywhere from 25% to 30%, depending on your FRA, so it is not a decision to be taken lightly. But if you land on that choice, there is a good chance you will be happy with it. Here’s why.
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1. Life is full of strangers
Social security is technically designed to pay you the same life in total, regardless of when you sign up for benefits. Signing up for 62 will give you a lower benefit each month, but you will also start getting that benefit sooner than you would wait until FRA. It still pays to collect benefits at 62 for one big reason: You just do not know what life has in store for you.
Think about it: You can start retirement perfectly healthy, only fall ill and die at a young age. In that scenario, losing that income earlier in life could result in less money from Social Security in your life, as well as missing the opportunity to do things you always wanted to do, such as travel. Therefore, it pays to start getting your benefits as soon as you are allowed to – that way you know you will enjoy at least a period of that extra income.
2. You will use that money to achieve your retirement goals
It is perfectly possible to spend the last part of your retirement on travel, golf, or doing the other things that make you happy. But let’s face it – you can have more energy and mobility at the age of 62 than 72 or 82, so the sooner you gather Social Security, the easier it will be to check important items from your personal bucket list and actually enjoy those things to the fullest. And while you may not necessarily miss out on the opportunity to travel or pursue your favorite hobbies when you apply for Social Security later, the experience of a two-month trip to the Andes may be different at 67 than it is at 62.
3. You will want to keep your savings
Many people are forced to retire early, despite wanting to stay in the workforce longer. If this happens to you, Social Security requirements will leave your savings intact for many years to come. And that could work wonders for your nest egg.
As mentioned earlier, you lose 25% to 30% of your benefits by claiming Social Security at 62 instead of waiting until your FRA. But if your IRA or 401 (k) has fantastic investments that consistently overwhelm the market, you may find that by taking early benefits, you can earn more by growing added wealth in your retirement plan.
Now to be clear, the average investor may not be better off signing up for Social Security early for this reason, especially since seniors are meant to shift to conservative holdings, such as bonds, when retirement comes close. But if you are an exceptional investor with a solid strategy, you could give yourself a few extra years to grow wealth in your IRA as 401 (k) it can work out very well.
While submitting to Social Security at 62 does mean a hit on the monthly benefits, the reality is that there is much to be gained by claiming them at the earliest age. And the chances are high that if you go that route, you will be more than satisfied with that decision.
