A major component of retirement preparation for millions of Americans is Social Security. When regular payments stop pouring in, it offers a reliable stream of cash.
However, did you realize that a single, typical choice, frequently made out of fear or impatience, could deduct up to 30% from your lifetime Social Security benefits?
Here are some tips to help you avoid making an expensive error.
The Expensive Step: Making an Early Social Security Claim
Making a claim before reaching full retirement age (FRA) is the single most significant choice that can significantly lower your Social Security payments.
Even though you can begin receiving benefits as early as age 62, there is a significant cost involved.
Your FRA usually ranges from 66 to 67, depending on the year of your birth. Your benefits will be lowered by up to 30% if you file for benefits at age 62, which is the earliest eligible age, as opposed to waiting until full retirement age.
Here’s a brief glance:
| Age You Claim | Monthly Benefit Reduction |
| 62 | ~30% less |
| 63 | ~25% less |
| 64 | ~20% less |
| 65 | ~13% less |
| 66-67 | Full benefits |
| 70 | ~24%-32% more |
Why It’s Dangerous and Why People File Claims Early
People frequently submit their Social Security applications early because they
- Fear that funding for the program will run out
- I urgently need the money.
- Desire to retire as quickly as feasible
- Expect to have a short life.
The drawback is that early filing could result in lost benefits totaling tens of thousands of dollars if you live a long life, which is the case for many people. If you claim early, you leave more money on the table the longer you live.
The Wise Move: Hold Off If You Can
Waiting until at least your full retirement age, or even until age 70, can significantly enhance your total lifetime benefits, if your health permits and you have other sources of income (such as a 401(k), savings, or part-time employment).
In actuality, your benefit increases by roughly 8% per year until you reach age 70 for each year you postpone past FRA.
Read Also: Born Before 1975? These Social Security Changes Could Hit You the Hardest
Exceptions: Situations in Which Early Filing May Be Appropriate
- It makes sense to file early in some circumstances, such as when you have significant health problems or a shorter life expectancy.
- You have no other source of income and are unable to work.
- As the spouse with the lesser income, you intend to eventually transition to spousal benefits.
An early claim might still be the appropriate course of action in those situations, but it should be made strategically rather than impulsively or out of fear.
