If you want to claim your Social Security benefits starting at 62, you are probably worried about how this decision will affect the amount of benefits you receive from the Social Security Administration (SSA). Understandably, you are worried about being “locked into a lower rate for life” since you are five years away from your Full Retirement Age (FRA). This is a common problem for people who plan to retire soon, and I would like to assist you with some of the concerns you may have related to this decision. So, let us go through the whole process step by step and answer any questions that you may have.
How does claiming Social Security at 62 affect your payments?
When you claim your Social Security benefits at 62, your payments are permanently reduced. Since you are claiming benefits before your FRA, which is likely 67, your benefit will be reduced by about 30% compared to what you would receive if you waited until 67. This reduction is permanent, meaning it will remain in effect for the rest of your life.
- Why the reduction? Social Security offers reduced payments to early claimants because you are drawing benefits for a longer period. While you are eligible for payments early, the system adjusts to balance the extra time you will be receiving benefits.
- Locked in? Yes, once you begin receiving this reduced amount, you will not be able to increase it, even once you reach your FRA. The reduction remains in place.
Should you claim benefits early or wait?
The decision to claim early depends on several factors. You might consider:
- Your financial needs: If you need the income now, especially if you are no longer working or have other financial obligations, taking the reduced benefits may make sense.
- Your health: If you are concerned about your health or do not expect to live as long, claiming benefits early allows you to receive payments for a longer period.
- Your family situation: If you are married, spousal benefits could also impact your decision. Waiting until FRA can provide your spouse with higher benefits in the long run.
What happens if you continue working after claiming benefits?
One thing to consider is whether you will continue working after you claim your benefits at 62. If you plan to keep working, it is important to know that your benefits may be reduced if you earn more than a certain amount before you reach your FRA.
For 2024, if you are under FRA and earn more than $21,240 annually, Social Security will deduct $1 for every $2 you earn above that limit. Once you reach FRA, this earning limit goes away, and you can work as much as you want without seeing a reduction in benefits.
- Good news: Any benefits that are withheld because of your earnings are not lost forever. When you reach FRA, the Social Security Administration recalculates your benefit amount and adjusts it to reflect the months you did not receive full payments due to work.
Can you change your decision later?
If you start claiming at 62 and later realize you want to stop or delay benefits to increase your payments, there is an option to “withdraw” your application within the first 12 months. You would have to repay all the benefits you have received so far, but after that, you can wait until a later age to restart benefits at a higher rate.
- One-time option: This withdrawal can only be done once, and you must act within 12 months of first claiming your benefits. It is a way to rethink your decision if your circumstances change.
How does waiting until full retirement age benefit you?
In case you can put off your benefits until FRA, you would get the totality of your benefit amount with no cuts. Actually, if you do not claim your monthly payment, but rather wait for it, the sum increases by 8% for each year. These are called the delayed retirement credits and they are applicable up to the age of 70 years.
Higher payments: Waiting until 70, increases your monthly benefits up to 32% which is higher than claiming your benefits at the Full Retirement Age, FRA. It is also 70% higher than claiming these benefits at age 62.
No work penalties: Reaching FRA allows you to earn any amount of money you want without a reduction.
