By Todd Campbell (The Motley Fool)
Social Security is a major source of retirement income for 47 million retired American workers, and its importance will only increase as more baby boomers retire. If you’re among those approaching retirement, you’re probably wondering if it’s wise to claim benefits early. There are good reasons for waiting, but these three reasons may convince you that filing for Social Security benefits at age 62 is smart.
1. Your goals are more important than the size of your check
Social Security only pays 100% of the benefits you earn over your career if you wait until full retirement age to claim. File for benefits earlier than full retirement age, and you’re going to get a much smaller check. How much smaller depends on how many months before full retirement age you begin collecting Social Security, but claiming at 62 could result in a reduction of as much as 30%.
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That’s a lot of monthly income to forgo, but it could be worth it if you have other sources of retirement income and your retirement bucket list includes an active lifestyle. The average 65-year-old has a life expectancy into the mid-80s, but that doesn’t mean you’ll be healthy enough in your 70s to live the retirement you imagine.
2. Family benefits could make a difference
More Americans are heading into their 60s with minor children, and if that’s the case for you, then Social Security benefits for family members could make claiming at 62 wise.
Children who are eligible can collect up to 50% of your primary insurance amount (PIA), regardless of whether you claim your benefits early. PIA is the monthly benefit amount you can collect at full retirement age, before adjustments for retirement age. To qualify, children must be under 18 and unmarried, 18 or 19 and a full-time student in a secondary school, or over 18 and disabled before turning 22.
Spousal benefits may be an option, too. If your eligible child is under 16, then your spouse may qualify for up to 50% of your full retirement age benefit even if he or she is less than 62, the earliest age at which spouses can usually claim spousal benefits. However, once the child turns 16, spousal benefits will stop unless the spouse has reached 62.
There is a family maximum, though. Including benefits that you’re receiving, the maximum payable on your work record ranges between 150% and 180% of your full retirement benefit, depending on your PIA. Here’s how Social Security maximum family benefits are calculated:
- 150% of the first $1,056 of the worker’s PIA plus…
- 272% of the worker’s PIA over $1,056 through $1,524 plus…
- 134% of the worker’s PIA over $1,524 through $1,987 plus…
- 175% of the worker’s PIA over $1,987.
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3. You need the money because of job loss or declining health
The most common age to claim Social Security is age 62, but people often aren’t claiming at that age because of the two previous reasons. Instead, it’s because they’ve suffered a job loss or their health has them worrying they’ll die younger than average life expectancy.
Social Security has a one-time do-over provision that allows you to claim Social Security benefits and then reverse your decision within 12 months. As a result, claiming early while searching for a job can help you shore up monthly finances, while also allowing you to change your mind. One word of caution, though. To reverse your decision, you’ll need to cut Social Security a check for any benefits you pocketed while receiving it.
In terms of declining health, Social Security’s designed to pay you the same amount in lifetime benefits based on average life expectancy, regardless of the age you claim. That’s why people who claim early have their benefit amount reduced, while people who delay claiming until 70 see their benefit increased. If you wait to claim and die younger than average, you could be leaving benefits on the table. Conversely, if you outlive the averages, you could wind up with a windfall in lifetime benefits.
Of course, there’s no way of knowing what the future has in store. But if you’re in poor health and longevity doesn’t run in your family, then claiming early to collect as much in benefits as possible before you die could make sense. A word of caution here, too, though. If you’re married and expect someone to receive survivor’s benefits based on your work record, you should know that those survivor’s benefits will be based on the amount you were receiving, not your PIA. Therefore, if you claim early, your survivors will be locked into a lower income.
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