Turning 62 This Year? Know These Essential Social Security Rules | Smart Change: Personal Finance

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(Maurie Backman)

Age 62 is a pretty important retirement milestone. That’s because it’s the earliest age you’re allowed to file for Social Security. It also happens to be a popular age for seniors to claim their benefits.

If you’re thinking of signing up for Social Security as soon as you’re able to, it’s important to understand the implications of that decision. And means familiarizing yourself with these essential Social Security rules.

1. You could end up with lower benefits if you don’t have a 35-year work history

If you started working in your early 20s, then you may have 35 years of work or more under your belt by the time age 62 rolls around. But if you took an extended career break — say, to raise kids — or if you didn’t start your career until your 30s because you spent extra time pursuing an education, then you may not have a 35-year work history by the time you turn 62.

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Why is that important? The monthly Social Security benefit you’re entitled to during retirement is calculated based on your 35 highest-paid years in the workforce. What this means is that for every year within that top 35 that you don’t have earnings on file, you’ll have a $0 factored into your benefits calculation.

Too many $0s — or even a single $0 — could leave you with a lower monthly benefit for life. And if you expect to rely heavily on Social Security during retirement, that’s not a good thing.

2. You could shrink your benefits for life if you claim them too soon

Although you’re certainly allowed to sign up for Social Security starting at age 62, that’s not when you’re entitled to your full monthly benefit based on your earnings history. To get that full monthly benefit, you’ll need to wait until you reach full retirement age, or FRA, to file.

FRA depends on your year of birth. If you’re turning 62 this year, it means your FRA is 67. And so if you file for Social Security at 62, you’ll end up with a benefit that’s 30% lower than what it could’ve been.

3. You could have benefits withheld if you file while you’re still working

The Social Security Administration will allow you to work and collect benefits at the same time. But if you do so before reaching FRA, you’ll risk having some benefits withheld if you make too much money.

This year, you can earn up to $19,560 without having your benefits affected. From there, you’ll have $1 in Social Security withheld for every $2 you earn above that limit.

Now those withheld benefits will be returned to you eventually — specifically, once you reach FRA. But remember, you’ll also lock in a lower monthly benefit by virtue of claiming Social Security at age 62. And that may not be worth doing if you’ll be working and having some benefits withheld due to high enough earnings.

know the rules

Many seniors claim Social Security once their 62nd birthday arrives. That’s not necessarily a poor choice. But it’s important to understand these rules before making that call.

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