Those born in 1963 will reach an important Social Security milestone this year: They’ll turn 62 and become eligible to claim benefits after paying into the program their entire career.
It’s tempting to apply right away so you can enjoy the extra income, but that might not be the best move for you financially. Waiting to apply will often increase how much Social Security you collect over your lifetime.
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Social Security’s full retirement age (FRA) and why it matters
The Social Security Administration assigns everyone a full retirement age (FRA) based on their birth year. In the past, it was as low as 65, but it has gradually crept up until reaching 67 for those born in 1960 or later.
The benefit you qualify for at your FRA is known as your primary insurance amount (PIA). If you apply before or after FRA, the government adjusts your PIA down or up, respectively.
Specifically, you lose 5/9 of 1% of your PIA per month for up to 36 months when claiming early, then 5/12 of 1% for every month thereafter. That means signing up for Social Security at 62 can reduce your checks by up to 30%.
If you qualify for a $2,000 PIA at your FRA of 67, applying right at 62 would drop it to $1,400. That would give you $7,200 less over the course of a year. Some people mistakenly believe this reduction only continues until you reach FRA, at which point the government restories your PIA, but this isn’t true. In the vast majority of cases, you receive the same benefit, with small adjustments for inflation, until your death.
So claiming early means collecting a higher number of smaller checks, while delaying benefits gives you bigger checks but fewer of them. In fact, delay benefits, and the government rewards you with an extra 2/3 of 1% of your PIA each month until you reach 70. That could increase your monthly benefit to 124% of your PIA.
Choosing the claiming age that’s right for you
Given how much an effect the timing of your claim can have on your monthly benefit, determining your optimal claiming age depends on your financial situation and life expectancy.
Delaying benefits only makes sense if you have other sources of retirement income you can rely upon until you’re ready to sign up for benefits. This could work if you have substantial savings or if you plan to work until your FRA or later. But for some, it’s not an option. If delaying Social Security would cause you to incur financial hardship now, it’s not worth it.
Otherwise, your life expectancy usually settles the question of the best claiming age. Those with short life expectancies will maximize what they collect from Social Security throughout their retirement by applying early. That said, studies show most people come out ahead by delaying their Social Security claim as long as possible.
Think through all your options and choose the claiming age you believe makes the most sense for you. If it’s 62, that’s fine. Just make sure you understand the long-term consequences of your decision.
