Editor's Note: This story originally appeared on The Penny Hoarder.
When your 62nd birthday approaches, you’ll have a big decision to make: Should you take Social Security at 62 and accept lower benefits? Or should you delay Social Security to get a higher benefit amount?
The answer to whether taking Social Security at 62 is the right move for you depends on several factors: your life expectancy, whether you’re retiring early and your overall financial situation.
Here are some things to consider in your retirement planning.
How Claiming Social Security Early Works
If you’re claiming Social Security based on your own record or you’re taking spousal benefits, you can start benefits as early as age 62. If you’re a surviving spouse, you can begin receiving benefits at 60. However, by taking benefits earlier, you’ll face a lifetime benefit reduction.
Your Social Security benefit is based on your primary insurance amount. That’s the amount you’d receive if you started your benefits at full retirement age. If you were born in 1960 or later, your full retirement age is 67. Full retirement age otherwise ranges from age 66 for those born in 1943 to age 66 and 10 months if you were born in 1959.
Any time you take Social Security before your full retirement age, you’ll have to accept a reduced benefit. Your benefit will be 6.66% lower for each year of early benefits. If you start them at that earliest eligible age of 62, your benefits will be 30% lower than they’ll be if you wait until you reach normal retirement age.
However, if you can hold out past full retirement age, you’ll earn delayed retirement credits. These amount to 8% per year until your Social Security benefits cap out at age 70. Waiting until age 70 results in a monthly benefit that’s 77% higher compared to if you started at age 62.
- Starting Age 62: $2,364
- Starting Age 65: $2,993
- Starting Age 66: $3,240
- Starting Age 67: $3,568
- Starting Age 70: $4,194
When Taking Social Security at 62 Makes Sense
Choosing when to take your Social Security retirement benefits is one of the biggest personal finance decisions you’ll ever make. However, you may want to start benefits as early as age 62 in the following situations.
If You Have Health Problems
If you’re in poor health or your parents died relatively young, claiming early often makes sense. Your Social Security payments will be lower, but claiming early may result in higher overall lifetime benefits.
Keep in mind, though, that your life expectancy is difficult to predict. Even if your health isn’t perfect, there’s a good chance you’ll live longer than you predict. According to the Centers for Disease Control, someone who turned 65 in 2019 could expect to live another 19.6 years on average. Outliving your money is a much bigger risk than leaving money on the table.
If You Have a Pressing Financial Need
The irony of Social Security is that the people who most depend on it often can’t afford to hold out for a bigger monthly benefit. That’s because many older workers are forced to retire early because of health problems, a layoff or caregiving duties. Social Security income can be a lifeline in these situations.
If delaying Social Security retirement checks would push you into debt, claiming early is a wise decision. Likewise, if delaying Social Security would cause you to forgo health insurance or medical treatment, you don’t want to wait.
If You’re Not Planning to Work
Taking Social Security while working before full retirement age will reduce your monthly benefit if your salary exceeds certain limits. In 2022, Social Security will reduce your benefit by $1 for every $2 you earn above $19,560.
The year you reach full retirement age, the annual limit is $51,960 and Social Security will only withhold $1 for every $3 you earn above this amount. Once you actually reach your full retirement age, you can stop worrying about a reduced benefit — the reduction stops at that point.
But you’re not permanently giving up the money you lose each year in reductions. When you hit normal retirement age, Social Security will recalculate your benefit at a higher amount to give you credit for the withheld funds.
However, it’s still true that the temporary reduction often makes it not worth your while to take Social Security early when you’re still employed.
When to Delay Taking Social Security
Obviously, there’s a lot of guesswork involved in terms of when to collect Social Security benefits. If these circumstances apply, consider waiting to claim benefits so you can collect more money each month.
When Your Health Is Excellent
Taking early benefits typically doesn’t make sense when you have an above-average life expectancy. In recent years, Social Security’s cost of living adjustments, or COLAs, have severely lagged behind the real-world living cost increases seniors face.
Though soaring inflation pushed the 2022 Social Security COLA to 5.9%, in most years, it’s hovered around 1% or 2%. Starting with an already reduced benefit makes it tough to keep up.
If you expect to live into your 80s or 90s, waiting is often the best move. Every year you wait past 62, your checks will increase by 6.66% until full retirement age. After that, they’ll increase by 8% until you hit the maximum benefit at age 70.
When Your Spouse Will Claim Your Benefit
If you’re married, you can’t just think about your own Social Security retirement benefits. You need to consider how your decision affects your spouse.
Often it makes sense for the higher-earning spouse to wait, particularly if they’re significantly older than the lower-earning spouse. If the higher earner dies before the lower earner, the lower benefit will be able to switch over to the higher survivor benefit. The widowed spouse can receive up to 100% of the deceased spouse’s benefits.
When You’re Postponing Retirement
If you’re still able to work and you enjoy your job, delaying Social Security is a sound strategy. By not taking early retirement, you’ll be able to get a bigger benefit, of course.
But by earning a paycheck, you can avoid taking money out of your 401(k) or individual retirement account (IRA), giving your money more time to compound.
Can You Undo Your Decision to Claim Social Security?
You have two opportunities to reverse your decision to take Social Security retirement benefits.
- You can withdraw your application: If you took Social Security early and it’s been less than a year, you can fill out Form SSA-521 to withdraw your application. You’ll need to repay Social Security for all benefits you received, along with any taxes or Medicare premiums that were withheld. When you’re ready to restart benefits, you’ll need to reapply. Then, you’ll qualify for a higher benefit based on your age at the time.
- You can suspend your benefits if you’ve reached full retirement age: If you’ve reached full retirement age but want to earn those 8% delayed retirement credits, you can contact your local Social Security office and ask to suspend your benefits. For example, if you suspend your benefits at age 67 and restart them at 69, your payments will be 16% higher. Your checks will automatically resume once you turn 70 if you don’t restart them sooner.
As you can see, your options for reversing your decision to start benefits are very limited. If you’re unsure about how to proceed, it’s essential to talk to a financial adviser before you take that first Social Security check.