Have you ever wondered what would happen if you tapped into Social Security sooner than “expected”? It’s a question millions of Americans contemplate as they approach their 60s. Well, first things first, you will get the benefits sooner, which can be a significant financial lifeline, but they will also be permanently reduced. This isn’t a temporary adjustment; the lower payment amount is locked in for the rest of your life. If you are eligible to receive Social Security benefits, you will have the option to decide when to start collecting them, and this decision is one of the most critical financial choices you’ll make for your retirement years.
When it comes to Social Security, “early” would point to the first possible age of eligibility, which is 62 years old. This is contrasted with claiming at your full or normal retirement age (FRA), which falls between 66 to 67, depending on the year of your birth, or even later (up to age 70), which results in an increased benefit. The choice is far from simple, as it involves a complex interplay of your current financial needs, your health, your family situation, and your long-term retirement goals. This article will delve into all the pros and cons of claiming your Social Security benefits earlier than planned or recommended, providing a comprehensive guide to help you make a more informed decision.
An overview
The Social Security Administration (SSA) is responsible for calculating the monthly benefit based on many different factors. The primary component of this calculation is your lifetime earnings history. Specifically, the SSA looks at your 35 highest-earning years, adjusted for inflation, to determine your primary insurance amount (PIA). This PIA is the full benefit you would receive if you started collecting at your designated full retirement age. The calculation also considers how much you have paid into the system via FICA taxes over the years and, crucially, when you decide to start collecting all the benefits.
If you claim the benefits at your full or normal retirement age in a way that has been defined by the SSA, you will receive 100% of the full benefit you have earned. However, you can also start claiming as early as 62 years old, in return for a permanently reduced benefit. This reduction isn’t arbitrary; it’s actuarially designed to ensure that, on average, a person receives roughly the same total lifetime benefits regardless of when they claim, assuming an average life expectancy. See how Social Security benefits are reduced at 62 based on your birth year and corresponding FRA:
- Year of birth: 1943-1954; Full retirement age: 66; Reduction at 62: 25.00%. Claiming at 62 means you receive 75% of your full benefit.
- Year of birth: 1955; full retirement age: 66 and 2 months; reduction at 62: 25.83%. You would receive 74.17% of your full benefit.
- Year of birth: 1956; Full retirement age: 66 and 4 months; Reduction at 62: 26.67%. This means your benefit would be 73.33% of the full amount.
- Year of birth: 1957; full retirement age: 66 and 6 months; reduction at 62: 27.50%. Your monthly check would be 72.5% of your PIA.
- Year of birth: 1958; full retirement age: 66 and 8 months; reduction at 62: 28.33%. You’d receive 71.67% of the full benefit.
- Year of birth: 1959; full retirement age: 66 and 10 months; reduction at 62: 29.17%. This results in a benefit that is 70.83% of your full entitlement.
- Year of birth: 1960 and later; full retirement age: 67; reduction at 62: 30.00%. For this group, claiming at 62 results in a benefit of just 70% of the full amount.
At the same time, if you wait past your full retirement age to collect those benefits, you will get credits for each month you decide to delay, which would add up to age 70. These credits, known as Delayed Retirement Credits, are a powerful incentive for patience. They slowly increase your monthly payment by two-thirds of 1% for every single month you decide to wait, which equals a guaranteed 8% increase per year. Waiting from an FRA of 67 to age 70 would result in a monthly benefit that is 124% of your primary insurance amount—a significant boost that also lasts for the rest of your life.
Which option would suit you? The decision rests on a careful evaluation of your personal circumstances. There is no single “correct” answer that applies to everyone. Here are a couple of advantages and disadvantages to consider if you want to decide whether to claim your benefits earlier on.
Advantages of claiming Social Security earlier
There are a number of compelling reasons why you should consider taking Social Security benefits before reaching full retirement age. For many, these immediate advantages outweigh the long-term reduction in monthly payments.
You need money now.
Plenty of Americans claim their Social Security benefits early, and they all have one reason in common: they really need money to cover their everyday living expenses. An unexpected job loss in your late 50s or early 60s, mounting medical bills, or the need to stop working to care for an ailing spouse or parent can make early claiming a necessity rather than a choice. Here’s the thing: during the recession years of 2008–2009, for instance, as many as 36% of eligible men and 39% of eligible women decided to claim the benefits at age 62, a clear indicator that in times of economic hardship, Social Security serves as a critical safety net.
You want them.
You might not need your benefits early to support yourself, and you may even have a couple of other reasons for wanting to take them as soon as you can. Well, some people are deeply concerned that Social Security might not be able to meet all their obligations in the future, so they just get their benefits as soon as possible. These concerns are often fueled by headlines about the Social Security trust funds facing a shortfall in the coming decades. For these individuals, the “bird in the hand” philosophy prevails; they prefer to receive a guaranteed, albeit smaller, payment now rather than risk potential benefit cuts in the future.
Others think they could do better by collecting benefits early and even investing that money rather than just leaving it in the government’s hands. This strategy, however, is fraught with risk. It requires achieving consistent investment returns that outperform the guaranteed 8% annual increase you receive by delaying your claim. Market downturns, especially early in retirement, could devastate a portfolio, making this a risky gamble compared to the secure returns from the SSA.
With that being said, you would have to be a quite skilled (or just lucky) investor to be able to beat the 6% to 8% guaranteed annual return on your Social Security money that you would get if you waited until you reached your full retirement age or even later. It is effectively a risk-free, inflation-protected annuity, a combination that is nearly impossible to replicate in the private market.
You fear you won’t be around to collect them later.
If you have a serious health condition or a family history of shorter lifespans, you might not expect to live long enough to profit from delaying those benefits. In this case, your wisest course could be to take them sooner rather than later. Even if you were to receive a way bigger benefit by claiming it at 70 years old, you might as well be into your 80s by the time you come out ahead, especially in terms of the total cumulative benefits you have received. Financial planners refer to this as your “breakeven age.” If your personal health assessment suggests you may not live past this age (typically in the late 70s or early 80s), claiming early makes sound financial sense for you personally.
Disadvantages
Naturally, claiming your benefits too soon also comes with a couple of significant and long-lasting downsides that must be carefully weighed against the immediate advantages.
Your benefits are reduced for good.
As we have mentioned already, claiming the benefits too soon also means they might be reduced on a permanent basis. This is the most significant drawback. For instance, as the list above explained, someone who is born in the 1960s or even later and takes their benefits at 62 years old will get 30% less every month for the rest of their lives, compared to a situation in which they would wait until their full retirement age of 67. If their full benefit was $2,000, they would only receive $1,400. Over 20 years, that’s a difference of over $144,000 in lifetime income, not including any cost-of-living adjustments.
Your cost-of-living adjustments will be smaller.
Besides receiving a smaller monthly benefit compared to the one you would get by waiting, you will get less on a dollar basis from any future Social Security cost-of-living adjustments (COLA). COLAs are applied as a percentage to your current benefit amount. Therefore, starting with a smaller base benefit means every future COLA will be smaller in absolute dollar terms. Beneficiaries are also slated to get a 3.2% increase in 2024 (the increase was a historically high 8.7% in 2023).
Those of you who were born between 1943 and 1954 and now receive a full monthly benefit of $2,000, for instance, will get an extra $64 every month from the 2024 COLA. If the same person takes Social Security at 62 years old, their benefit would have been reduced by 25% to $1,500, and they would get a COLA of only $48 a month in 2024. That may not seem like a huge difference initially, but because of the effects of compounding, the main difference between the two benefits will keep widening year after year, potentially leaving you with less purchasing power later in life when you may need it most.
You’ll be penalized if you work.
Before reaching full retirement age, any money you earn from a job will directly affect your Social Security benefits if your earnings exceed a certain annual limit. This is known as the retirement earnings test. In 2023, Social Security might deduct $1 from your benefits for each $2 you earn above $21,240. This limit increases to $22,320 in 2024. This can come as a shock to those who planned to supplement their early benefits with part-time work.
Moreover, a different, higher limit applies in the year you reach your full retirement age. In 2023 or 2024, the SSA will deduct $1 from your benefits for every $3 you earn above $56,520 until your birthday month. It’s important to note that this withheld money is not lost forever; the SSA will recalculate your benefit at your full retirement age to give you credit for those withheld months. Even if you get the money back way later, you will still have less to spend in the meantime, which can defeat the purpose of claiming early.
Special considerations
But what if you claim benefits too soon and then end up regretting it? In some instances, the Social Security Administration will give you the opportunity to try a do-over. In a process known as withdrawal, you can easily cancel your application for as much as 12 months after you are officially entitled to retirement benefits. This is a one-time-only option, and it’s as if you never claimed at all, allowing your benefits to continue growing.
Moreover, you will have to repay any Social Security benefits you and your family received, including any money that was withheld from your benefits to pay for Medicare premiums or federal income tax. For some, repaying a year’s worth of benefits is not feasible, making this option inaccessible. A second, more flexible option is available if you are past the 12-month window but have reached your full retirement age. You can voluntarily suspend your benefits. They will stop your payments, but you will begin earning the delayed retirement credits of 8% per year until you decide to restart them or they are automatically restarted at age 70.
How do I know if I’m eligible for Social Security?
To be fully eligible for Social Security retirement benefits, you need to be a minimum of 62 years old and have earned a minimum of 40 Social Security credits. Generally, this would mean that you have worked and paid FICA taxes into the system for a minimum of 10 years, as you can earn up to four credits per year. The amount of earnings needed for one credit changes annually; in 2024, you earn one credit for every $1,730 in earnings. Spouses, and sometimes ex-spouses, can also be eligible for benefits based on their spouse’s work record, even if they have not earned 40 credits themselves.
Can I collect Social Security retirement benefits if I still work?
The answer is yes. You can still work and collect Social Security benefits at the same time. But as detailed earlier, your benefits could be temporarily reduced due to the retirement earnings test if you haven’t yet reached your full retirement age and your income exceeds the annual limit. Once you reach your FRA, the earnings limit disappears completely, and you can earn any amount of money without your benefits being reduced.
Can I get Medicare early if I take SS early?
No, claiming Social Security too soon won’t affect your eligibility for Medicare. The eligibility age for Medicare is 65, no matter when you start collecting Social Security. If you start your Social Security benefits before age 65, you will be automatically enrolled in Medicare Part A and Part B when you turn 65. If you are not yet collecting Social Security, you will need to sign up for Medicare yourself during your initial enrollment period, which is the seven-month period surrounding your 65th birthday.
How does my choice affect my spouse?
Your claiming decision can have a profound impact on your spouse. If your spouse is eligible for a spousal benefit (up to 50% of your full benefit), that benefit will also be permanently reduced if you claim your own benefit early. More importantly, it affects the survivor benefit. If you are the higher earner and you pass away, your spouse will receive a survivor benefit equal to the amount you were receiving at the time of your death. By claiming early and accepting a reduced benefit, you are also locking in a lower potential survivor benefit for your widowed spouse for the rest of their life.
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