There is a reason why 62 has historically been the most common age to enroll in Social Security: It is the youngest age at which one can begin receiving benefits.
Once you reach full retirement age (FRA), you are entitled to your full monthly Social Security payment based on your specific earning history. Depending on your birth year, this age is 66, 67, or 66 plus a specific number of months. Without knowing your FRA, you will not be able to calculate how much your monthly benefit would be reduced if you begin receiving Social Security at age 62.
Your monthly payout is permanently lowered for each month you submit before your FRA. Consequently, if your FRA is 67 and you apply for Social Security at 62, you will face a 30% cut, which is a significant cut to some.
You may now be ready to accept a reduced monthly Social Security payment in exchange for receiving your money sooner. But here are some reasons why you may not want to register as soon as possible:
There are excessive risks.
At age 62, enrolling in Social Security may sound enticing. But it may also be dangerous. For starters, you cannot predict how well your nest egg will perform during your retirement. Moreover, if market conditions force your assets to underperform, you risk draining your funds early.
Consider the performance of the stock market this year. Many investors are experiencing lower IRA and 401(k) balances than at the beginning of the year due to general volatility. This is something that an increase in Social Security benefits can help protect against.
Living a longer life may also cause you to exhaust your funds sooner than anticipated. You may, for instance, withdraw from your retirement assets based on the expectation that you will live until the mid-80s. However, if you live into your mid-90s, you may find yourself in a financial bind.
And then there’s inflation — a term known to many people this year. You never know when inflation will cause your living expenses to rise, straining your savings and making it more likely that they will be depleted sooner.
Therefore, claiming Social Security at age 62 may not be the wisest course of action. Certainly, you will have access to your funds at an earlier age. But you will permanently reduce your monthly benefit. Moreover, if your assets do not survive the entirety of your retirement, you may require a larger payout later in life.
If you have $2 million in your IRA or 401(k), you can begin your retirement, but that money is not guaranteed to last. On the other hand, Social Security will continue to pay you a monthly benefit even if you live 110 years old. Therefore, the greater the monthly benefit you can lock in, your long-term financial security will be greater.