8 Reasons You Shouldn’t Claim Social Security Early

For those born after 1960, age 67 is the full retirement age, and that is the age at which you would normally start claiming Social Security benefits. However, if you need the money sooner — or you worry about the future of Social Security — it’s possible to start claiming benefits as early as 62.

While it may be nice to rely on that guaranteed monthly income, don’t rush to immediately start Social Security benefits if you are between 62 and 67 years old — because it comes with its share of downsides. Be aware of these major reasons you shouldn’t claim Social Security early.

The first thing you should know about starting Social Security benefits early is that it will reduce your monthly benefit amount. Anyone who starts claiming Social Security benefits before the full retirement age will have their benefit reduced by up to 30%.

On the other hand, delaying Social Security beyond age 67 will increase your benefits, potentially paying out as much as 132% of the full benefit.

Depending on your situation, you might receive less money overall if you start Social Security benefits early. The main factor here is how long you live. If you live to be 90 years old, for example, delaying benefits will likely result in more benefits received by the end of your life than you would if you start benefits early.

This is assuming your full benefit amount is roughly equal to the median Social Security benefit of $1,657. If you only make it to 75, starting benefits early will likely net you more. In general, the break-even age is in your mid-to-late 70s, meaning you have to live at least that long until it becomes better to delay benefits until age 70.

Of course, none of us knows exactly how long we will live. Plus, it might seem a bit morbid to make a decision based on the idea that you won’t live well into your 80s. Nevertheless, this is one of those difficult calculations we have to make when thinking about our finances near the end of our lives.

Claiming Social Security early could lead to outliving your retirement investments. Remember that starting benefits early will lead to a smaller monthly Social Security check, and that means you may have to lean more heavily on your retirement investments.

As a result, you could end up outliving that money, leaving you with just your (now lower) Social Security payments.

Social Security payments are subject to cost-of-living increases; in 2022, payments were increased by 5.9% to account for a higher cost of living. But remember that starting your benefits early permanently reduces your benefit amount, and that includes cost-of-living increases. Cost-of-living increases are reduced by a percentage comparable to the percentage mentioned in the first section.

If you are married and make more than your spouse, you could reduce their Social Security benefit if you start benefits early. There is a spousal Social Security benefit which is equal to 50% of the benefit of the highest-earning spouse.

For instance, if your full Social Security benefit is $2,000 and your spouse’s full benefit is $900, they will be eligible to receive an additional $100 to bring their benefit to $1,000. But if you start benefits early and your monthly check is reduced to $1,800, your spouse won’t receive anything extra.

Another thing to think about with starting Social Security benefits early is the potential tax implications. Some people like to start benefits early so they can delay distributions from their retirement accounts. However, your Social Security benefits may be taxable; the IRS bases this on what it calls combined income. In other words, pairing Social Security benefits with income from a 401(k) or some other traditional retirement plan can reduce your overall tax liability.

If you’re still feeling spry at 62 and decide to keep working, your Social Security payments may be reduced if you start them around the same time. In 2022, for instance, your Social Security benefit will be reduced by $1 for every $2 you earn above $19,560. That could mean a lot less on Social Security payments in your lifetime.

Perhaps it goes without saying, but you may be leaving money on the table if you decide to retire early and your job provides great benefits. For example, if your employer has generous matching contributions for your 401(k), staying at your job for a few extra years could work out better overall.

Find out what the maximum contribution is and whether that amount justifies staying. Also, recall that traditional (non-Roth) retirement income can reduce how much tax you owe on your Social Security benefits.