The Social Security Trap That Quietly Pulls New Retirees Into Claiming Too Early

If there’s one financial decision that’s likely to carry a lot of weight throughout your retirement, it’s your Social Security claiming age.

You can file for benefits starting at age 62. But you won’t get those benefits without a reduction unless you wait until full retirement age (FRA), which is 67 for anyone born in or after 1960.

Now in some cases, claiming Social Security at 62 makes sense. But some new retirees may be filing for benefits at 62 for the wrong reason. And that’s a trap you should make sure to avoid.

Don’t let fear push you into a bad choice

It’s one thing to claim Social Security at 62 because you’re out of work or unable to work and need money. But it’s another thing to claim Social Security as early as possible simply because you’re worried that the program is running out of funds and will soon go bankrupt.

One thing you need to know is that Social Security actually can’t run out of money. And the reason is that its primary revenue source is payroll tax income.

If you’re working, you may notice that a portion of your paycheck goes toward Social Security. This means that as long as we have an active labor force, Social Security can continue to receive funding and pay benefits to some degree.

Now the one thing that could change with Social Security is that the program may have to cut benefits within the decade if lawmakers don’t manage to shore up its finances. That’s because Social Security’s financial obligations in the coming years are expected to exceed its incoming revenue due to a shrinking workforce.

Millions of baby boomers are expected to retire over the next few years. Once that happens and they begin claiming Social Security themselves, the system is apt to get strained.

But that doesn’t mean Social Security is going away. The worst-case scenario on the table right now is benefit cuts. And even those might end up being avoidable. So you shouldn’t let fear of not getting any money lead you to claim Social Security as soon as you can.

The numbers paint a bleak picture

If you claim Social Security at 62 as opposed to waiting until 67, you could see a 30% reduction in your monthly checks for life. But that could become even more problematic if Social Security is forced to reduce benefits broadly.

Let’s say that at 67, you’d get $2,000 a month in Social Security. If you file for benefits at 62, you’ll only get $1,400 a month.

Now, let’s say Social Security has to implement a broad 20% benefit cut. Suddenly, your $1,400 check shrinks to $1,120.

On the other hand, if you wait until FRA and collect your $2,000 check, a 20% cut will leave you with $1,600. That’s still a harsh blow, but you’ll be in a much better position compared to only getting $1,120 a month for life.

And remember, each year, Social Security benefits are eligible for a cost-of-living adjustment. The larger your monthly checks are to begin with, the more money those annual raises can put in your pocket, too.

This isn’t to say that filing for Social Security at 62 is a bad choice off the bat. Rather, it’s that filing early because you think benefits are going away is a move you might sorely regret. So don’t let that be the reason you take benefits as soon as you’re eligible for them.