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3 Terrible Reasons to Take Social Security at 62

More Americans take Social Security at 62 than at any other age. For most people, it's the earliest opportunity they have to claim their benefits, and whether it's because they've been forced into early retirement or simply want the money, getting those checks rolling in as soon as possible is as easy as contacting the Social Security Administration and filing the necessary paperwork.

There are definitely cases where it's smart to take your benefits at 62, and for a lucky few, not claiming at 62 is a huge mistake simply leaves money on the table. That said, there are many reasons for taking Social Security at 62 that just don't make sense. Here are a few of them.

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1. The idea that Social Security will stop paying you in the future

Many people claim their benefits as soon as possible because they're afraid that they need to take whatever they can get before Social Security goes bankrupt. There are some facts to justify that fear, but most people don't understand all the ins and outs involved.

Specifically, the trustees of the Social Security Trust Funds have projected that the financial reserve that allows Social Security to cover excess benefits above what it brings in through payroll taxes and other revenue sources will run out in the mid-2030s. That's still 15 to 20 years away, making it of less immediate concern to those who are retiring today. After that, Social Security won't stop, but the money it brings in will only be enough to cover between 75% and 80% of benefit payments. Therefore, it's possible that without any action, retirees will face a 20% to 25% reduction in their monthly checks. Yet even that worst-case reduction doesn't substantially affect the decision of when to take Social Security to maximize expected total lifetime benefits. It's also quite likely that lawmakers will take action to protect benefits, making it even more important to stick with smart planning now.

2. You don't have enough retirement savings

Early filers often justify taking Social Security because they don't have enough income from other sources to cover their retirement needs. Personal savings rates in the U.S. are extremely low, and most people choose not to set aside adequate financial reserves to cover even a few years' worth of expenses, let alone their true long-term retirement needs.

Social Security's purpose is to supplement other sources of retirement income to protect Americans' financial security. As harsh as it sounds, those who haven't saved enough for retirement and who have the option of working longer should generally do so rather than looking to Social Security immediately. Waiting can give you larger Social Security payments and more savings outside of Social Security to rely on, and that's a win-win scenario for your retirement prospects.

3. Misunderstanding what you're giving up by claiming early

There have been enough warnings about taking Social Security early that most people have a general idea of the trade-offs involved between claiming at 62 and waiting until full retirement age. For those whose full retirement age under Social Security is 66, claiming at 62 costs you 25% of your monthly payment. So if you would have gotten $1,000 by waiting until 66, then you'll only $750 by claiming at 62.

Many people mistakenly figure that by considering cost-of-living increases, the gap between what they'll get by claiming early and what they would have gotten by waiting will get narrower. For instance, with a 2% annual COLA, $750 per month at 62 turns into $765 when you're 63, $780 when you're 64, and $796 when you're 65. That's a lot closer to $1,000. However, the cost-of-living increases also apply to the $1,000, so that by the time you're 66, that amount will be closer to $1,080. Don't shortchange yourself by making basic math mistakes about how your benefits will work.

Make a smart Social Security choice

It's never easy to decide when to claim Social Security benefits, and there are good reasons for claiming early or for waiting. But it's important to avoid using bad information to make your decision. Too much is riding on your retirement finances to let mistakes lead you to make the wrong choice.

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