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Taking Social Security at age 62 instead of full retirement age (66-67) results in a 30% reduction in permanent benefits.
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Delaying benefits beyond age 62 increases monthly payments, but requires living long enough to recoup lost income.
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When it comes to applying for Social Security, there are many different opinions. Well-known financial expert Suze Orman shared her views on LinkedIn not long ago.
In her post, the financial expert warned that making specific decisions about collecting Social Security could lead to “costly cuts.”
Here’s what Orman has to say about the Social Security claim option, which could end up being costly.
Orman’s warning is to collect Social Security too young. You can start collecting benefits as early as age 62, but Orman doesn’t think you should.
As she explains, the full retirement age (FRA) for most people is between 66 and 67, depending on your birth year. If you wait until after FRA to start receiving benefits, you can receive all the standard benefits you are entitled to receive from this entitlement plan. This standard benefit is based on your average highest-earning, inflation-adjusted salary over a 35-year career.
However, many people will start checking as soon as possible, even though that is earlier than Frankfurt Airport. Orman said doing so would result in “costly cuts,” and she was right. If you apply for benefits before FRA, you will be subject to an early filing penalty. These are equal to 5/9ths of 1% each month for the first 36 months, and 5/12ths of 1% for any previous month in which you apply for benefits.
Add it all up, and Orman explains your benefits could be only 70 percent of standard benefits. This will happen if you file a claim at age 62 instead of at FRA 67, because your benefit will be reduced by 30%.
While Orman warns that claiming early can lead to costly cuts, she does have a caveat about her advice. “Don’t settle for a reduction in Social Security benefits. If you are healthy, the best financial move is not to collect Social Security until you reach full retirement age,” she said in a LinkedIn post. (France).
The “good health” part of her statement is important. That’s because when you delay paying Social Security, you miss out on income you would have received. Missing those checks isn’t necessarily a bad thing, since you’ll get a higher check later. However, you’ll obviously want to get a big enough check to make up for the lost income. If you don’t, say, because you die before breaking even, then you’re giving up some lifetime benefits for no reason.
You should carefully consider your health status when making a decision about your claim, and you should also consider things like how your claiming age might affect your spouse’s receipt of survivor or spousal benefits if they plan to claim. This will help guide you in choosing the best age to claim.
But the reality is that making the decision can be very confusing, especially for married couples who have many different ways to optimize lifetime benefits. For most people, the best option is to work with a financial advisor to get some advice on the Social Security claiming age that truly makes the most sense based on your personal financial situation.
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