As you approach retirement, you must make many important decisions, including where you’d like to retire, your savings withdrawal strategy, and when to claim Social Security.
Decisions like how you plan to withdraw your savings may be much easier because they can be adjusted over time, but others have more long-term consequences, making them less straightforward. One of those latter decisions is when to claim Social Security.
You can claim Social Security beginning at 62, but doing so will permanently reduce how much your monthly benefit amount is. Even so, there’s one key reason to claim Social Security at 62: Flexibility.
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How your monthly benefit is affected by claiming early
Your monthly benefit amount revolves around your primary insurance amount (PIA), which is the monthly amount you’ll receive if you claim benefits at your full retirement age (FRA). Below are FRAs by birth year:
Image source: The Motley Fool.
Social Security uses your PIA and reduces your monthly benefit based on how far away you are from your FRA. Using someone whose FRA is 67 as an example, here is how much monthly benefits are reduced based on claiming age:
| Claiming Age | Monthly Benefit Reduction |
|---|---|
| 66 | 6.67% |
| 65 | 13.33% |
| 64 | 20% |
| 63 | 25% |
| 62 | 30% |
Source: Social Security Administration. Table by author.
In this scenario, claiming benefits at 62 would reduce your monthly benefit amount by 30%. If your PIA is $2,000, your monthly benefit at 62 would be $1,400.
It’s helpful to consider your break-even age
When making a case for claiming benefits at 62, I like to give perspective by showing people’s break-even age. In Social Security, your break-even age is when the total lifetime benefits from claiming at one age equal that of another.
Knowing your break-even age can help you decide if claiming benefits early and taking the reduction is better than claiming at your FRA or delaying (which increases your monthly benefit).
Since we’re focused on the age of 62, we’ll use that as our comparison point and assume a FRA of 67 and a monthly benefit of $2,000.
| Age and Monthly Benefit | Total Benefits Received at Age 67 | Total Benefits Received at Age 68 |
|---|---|---|
| 62 ($1,400) | $252,000 | $268,800 |
| 65 ($1,733) | $249,552 | $270,348 |
Table by author. Benefit at 65 rounded to the nearest dollar.
In this scenario, the break-even point between 62 and 65 occurs between ages 67 and 68.
| Age and Monthly Benefit | Total Benefits Received at Age 78 | Total Benefits Received at Age 79 |
|---|---|---|
| 62 ($1,400) | $268,800 | $285,600 |
| 67 ($2,000) | $264,000 | $288,000 |
Table by author.
In this scenario, the break-even point between 62 and 67 occurs between ages 78 and 79.
| Age and Monthly Benefit | Total Benefits Received at Age 80 | Total Benefits Received at Age 81 |
|---|---|---|
| 62 ($1,400) | $302,400 | $319,200 |
| 70 ($2,480) | $297,600 | $327,360 |
Table by author.
In this scenario, the break-even point between 62 and 70 occurs between ages 80 and 81.
Claiming earlier can provide more financial flexibility
Your Social Security claiming decision should be about more than just break-even ages. You should consider your current financial situation, personal and family health history, retirement goals, and similar factors.
Having said that, it’s worth considering the many months of missed payments caused by claiming later than 62. Claiming at 65 is 36 months, claiming at 67 is 60 months, and claiming at 70 is 96 months.
That’s a lot of time and payments (even with them being smaller) that could be used to enhance your retirement however you see fit. That money can be used to travel while you may be more active, embrace hobbies, or cover living expenses without dipping too much into your retirement savings.
Of course, no one claiming decision works best for everyone. However, the idea is that claiming at age 62 provides immediate financial flexibility to enjoy retirement.
