One of the most important retirement decisions you'll make is when to file for Social Security . Unlike Medicare, for which eligibility begins at age 65, you get an eight-year window to sign up for Social Security that begins at age 62 and ends at age 70. (Technically, you can delay your benefits past 70, but since there's no financial incentive not to, it's generally considered the latest age to start collecting.)
And make no mistake about it: Many seniors are more than happy to get their hands on their benefits as soon as possible, making 62 the most popular age to file. But in recent years, the number of Americans claiming benefits at age 62 has dwindled, thereby reflecting a positive shift in how workers approach their filing strategies.
Back in 2004, 50% of men and 55% of women filed for Social Security at 62. But in 2016, only 32% of men and 37% of women did the same. If this trend continues, we're apt to see a growing number of seniors who are able to get more money out of the program -- and live more comfortably in retirement as a result.
The problem with filing early
If it weren't for the fact that filing early results in a reduction in benefits, it would clearly make sense for most folks to claim Social Security at 62. But filing for benefits before reaching full retirement age (FRA) will cause your benefits to be slashed automatically, which means you stand to lose a large chunk of your monthly income over the course of retirement.
Here's what full retirement age looks like for today's workers:
|Year of Birth||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
Data source: Social Security Administration
Now let's imagine you were born in 1960 and stand to collect $1,400 a month in Social Security if you file at FRA. Taking benefits at 62 instead will cut your monthly payments down to $980, which means you stand to lose out on $5,040 of annual income throughout retirement. That's a lot of money to part with if you're behind on savings.
And unfortunately, most Americans are behind on savings. The average household aged 56 to 61 has just $163,577 set aside for retirement, according to the Economic Policy Institute. Now that might seem like a decent amount of money, but when we apply a 4% annual withdrawal rate , which is what most financial experts recommend starting with, that results in just $6,543 in yearly income -- hardly enough to live on. Therefore, to collect only $11,760 on top of that ($980 x 12 months), as opposed to $16,800 ($1,400 x 12 months) makes a huge difference. There lies the danger of jumping the gun on Social Security, so the fact that fewer people are making that mistake is encouraging.
Of course, filing for Social Security at 62 isn't always a bad idea. If you've lost your job or are unable to work and need those benefits to pay your living expenses, you're better off claiming Social Security than racking up credit card debt to keep up with your bills. Furthermore, if your health is poor and you don't expect to live a long life, you'll generally get more money from Social Security in your lifetime by filing as early as you can. Finally, if you have a healthy nest egg and don't need your benefits to pay the bills but rather want the money to enjoy your golden years sooner, there's no harm in filing at 62. But unless these circumstances apply to you, you're generally better off being patient and holding off on benefits until you reach FRA.
That said, there's also the option to delay benefits past FRA and increase them by 8% a year up until age 70. Though the vast majority of seniors who collect Social Security file prior to 70, if you're able to hold out that long, you'll snag a sizable boost in your monthly payments that will remain in effect for the rest of your life. And that's a good way to eliminate some of the financial worries you might have going into retirement.
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