If You’re Going to Claim Social Security Early, Do It for the Right Reason | Smart Change: Personal Finance

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(Maurie Backman)

When it comes to filing for Social Security, you get a choice. You can sign up as early as age 62 or delay your filing until the age of 70. In fact, you technically don’t even have to sign up at 70. But since there’s no financial incentive to wait longer than that, 70 is generally considered the latest age to file for benefits.

The filing age you choose will dictate what your monthly Social Security benefit looks like. If you sign up to start collecting benefits at age 62, you’ll lose 25% to 30% of the amount you would’ve gotten by waiting until full retirement age, or FRA. FRA kicks in at 66, 67, or somewhere in between, depending on your year of birth.

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Meanwhile, for each year you delay your filing past FRA, your benefits will get an 8% boost, up until age 70. Waiting until 70 could mean snagging a monthly benefit that’s 24% to 32% higher, depending on your specific FRA.

Age 70, however, isn’t a very popular age to claim benefits. Rather, seniors are generally more apt to take their benefits early.

That’s a route you might choose to take, as well. But if that’s the case, it’s important that you do so for the right reason.

Don’t let fear inform your decision

Many people are worried that Social Security is on the verge of running out of money, and it’s that they fear that prompts them to claim benefits as early as possible. But that’s a mistake you might regret.

The reality is that while Social Security is facing some financial challenges, it’s not about to stop paying benefits. In a worst-case scenario, benefit cuts could come into play in a little over a decade, but there’s still time for lawmakers to come up with a solution to prevent that.

Even if benefits are cut, if you lock in a lower benefit by signing up at age 62, you’ll risk being all the more cash-strapped in retirement. By contrast, if you delay your Social Security filing and raise your benefit in the process, you’ll be in line for a more generous monthly payday — even if benefits are slashed across the board.

Better reasons to file early

There are plenty of valid reasons to sign up for Social Security before reaching FRA. You may, for example, be sitting on a nest egg so large that your Social Security benefits will only comprise a small portion of your total retirement income. In that case, you may opt to file early and use your benefits to travel or pay for a hobby.

You may also end up in poor health as retirement nears. If that’s the case, claiming Social Security early might slash your benefits on a monthly basis but leave you with a larger amount of income on a lifetime basis.

There’s nothing wrong with signing up for benefits ahead of FRA if you’ve taken the time to think things through. But don’t rush to claim benefits because you’re worried about Social Security running out of money. That’s not a scenario anyone is contemplating and shouldn’t be something you worry about, whether you’re on the cusp of retirement or have many working years ahead of you.

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