Claiming Social Security at 62 Locks In a 30% Cut for Life. Here’s the Real Price Tag

If someone were to offer you a chunk of money every month, would you ask to start collecting it right away? Or would you be willing to sit tight for five years in exchange for larger checks?

Chances are, you’d want to start collecting that money as soon as possible. And it’s that same logic that drives many older Americans to claim Social Security at 62.

Age 62 is the earliest age to collect retirement benefits from Social Security. But there’s a cost to getting that money at 62 — a 30% benefit cut compared to waiting until full retirement age (FRA), which is 67 for people born in 1960 or later.

You may not realize how poorly the math could work out on an early Social Security claim. So before you file at 62, make sure you understand what you’re actually giving up.

It’s not just a matter of monthly income

For each month you claim Social Security ahead of FRA, your benefits get reduced. If your FRA is 67 and you file at 66, you’ll lose about 6.67% of your checks. That’s not great, but it may not be catastrophic.

But if you file for Social Security at 62, you’ll lose 30% of your checks. A $2,000 monthly benefit, for example, will shrink to $1,400.

You may decide that hit is worth it if it means getting your money sooner. But on a lifetime basis, the amount of Social Security you end up giving up could be enormous.

Let’s say you start benefits at 62 and whittle your checks down to $1,400 apiece as per the example above. If you end up living until age 82, you’ll receive a total of $336,000 in Social Security from filing at 62 versus $360,000 from waiting until your FRA of 67. That’s a difference of $24,000.

But the longer you live, the more that gap widens. If you live until age 92, your lifetime Social Security benefit will be $504,000 if you file at 62. File at 67, and that lifetime benefit increases to $600,000 — a difference of $96,000.

And remember, these calculations don’t take Social Security’s annual cost-of-living adjustments (COLAs) into account. Those COLAs are dished out on a percentage basis, but the larger your benefits are to begin with, the more those raises are worth on a dollar basis. So all told, you could be out a lot of money if you claim Social Security at 62.

It’s also a matter of peace of mind

Not only could claiming Social Security early reduce your benefits substantially, but it could also have an impact on your peace of mind. Social Security may be the one income stream that’s designed to pay you for life. So if you whittle it down, you might run into financial stress later on.

Your savings, for example, could run out if your portfolio doesn’t perform as expected. Social Security isn’t reliant on market conditions the same way.

For this reason, it’s important to think carefully before claiming Social Security at 62. You may be tempted to start getting your benefits as soon as you can. But make sure to consider the math behind that decision before locking it in.

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