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Why you lose when you claim Social Security benefits early

It is very tempting to turn 62 and claim Social Security benefits. Generating instant guaranteed income for the rest of your life is a seductive proposition. However, if you have very little saved or worse, no retirement savings, claiming Social Security benefits early can be devastating.

There are instances where it can be beneficial for seniors to accept a permanent reduction to their monthly payout in order to begin receiving their benefits early. The permanent reduction is a penalty of sorts, for early claims. For example, someone in poor health, who’s unlikely to live into their 80s, would probably collect more in lifetime income by taking their benefits earlier than by waiting an extra four to eight years to begin taking their Social Security benefits. The reverse is also true. Someone in excellent health with longevity on their side will do better by claiming benefits after Social Security’s retirement age, increasing the lifetime take home benefit from the Social Security program exponentially.  

The worst position to be in, however, is to enter retirement, claim Social Security benefits at 62, with little to no savings. For most seniors, their Social Security benefit is the major or sole source of income heading into retirement. When you claim Social Security early, your monthly payout will be reduced, as high as 30%, depending on your birth year.

Other factors seniors experience but may not have been aware of when they elected to claim Social Security benefits are inflation, the retirement earnings test, and the $ 13.9 trillion cash shortfall, the latest Social Security Board of Trustee’s Report reports. Even with the cost of living adjustment (COLA), designed to keep up with inflation, most seniors will experience trouble meeting their living expenses through time due to inflation. Filing early may also expose you to the retirement earnings test. The retirement earnings test allows SSA to withhold some or all of your benefits depending on whether your earnings cross certain level. That means that if you plan to work and collect benefits to increase your income streams, your plan may not work and come back to haunt you. Lastly, there is grumbling from Washington that an across the board cut to retired worker benefits is coming. Retired worker’s benefits may be slashed 23% by 2035 if the Social Security Board of Trustee’s Report is believed. The Social Security program is currently facing a $13.9 trillion cash shortfall between 2035 and 2093, if Congress continues to delay finding ways to raise additional revenue or cut expenditures to make the program solvent.

Wait a couple of more years to retire, if you find yourself wanting to claim Social Security at 62 but still feel, health permitting, that you can continue to work.

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