The No. 1 Reason to Claim Social Security at 62

Key Points

• Know that claiming Social Security benefits at age 62 can shrink your checks by up to 30%.

• Yet, signing up that early could be the right move if it saves you from major financial stress.

• The $23,760 Social Security bonus most retirees completely overlook ›

You want to get as much money from Social Security as you can, but you're anxious about applying at the wrong time. You know if you sign up as soon as you become eligible at 62 that you could shrink your checks by up to 30%. That could cost you tens of thousands of dollars throughout your retirement.

But delaying your Social Security claim brings its own problems. While it's true that it gives you a larger lifetime benefit, it might not be worth it if it causes you a lot of financial stress. Before you make up your mind, though, it helps to understand exactly how your claiming age affects your checks.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »

Image source: Getty Images.

What happens when you claim Social Security at 62?

You become eligible for Social Security at 62, but you must wait until your full retirement age (FRA) to qualify for the full benefit you've earned based on your work history. Your FRA depends on your birth year. If you were born in 1960 or later, yours is 67. If you were born before this point, you could have a slightly younger FRA.

When you claim benefits before your FRA, the Social Security Administration shrinks your checks, first by 5/9 of 1% per month for up to 36 months and then by 5/12 of 1% per month thereafter. So those who sign up right at 62 reduce their checks by 30% if their FRA is 67. That's enough to drop a $2,000 monthly check to $1,400.

Put another way, every month that you delay your checks increases your benefit a little. This doesn't stop when you reach your FRA. After that, your checks grow by 2/3 of 1% per month, or 8% per year, until you hit your maximum monthly benefit at 70. This could be worth 124% of what you qualify for at your FRA of 67.

Looking at this, it's easy to assume that you're always better off delaying Social Security until 70 so you get your biggest checks. And it is true that more than 90% of Americans would get their biggest lifetime benefit by doing this, according to a National Bureau of Economic Research (NBER) study. That said, there are times it makes sense to claim early, even if it means settling for a smaller lifetime benefit.

When claiming early makes sense

If delaying your Social Security claim would cause your or your family unnecessary financial hardship, then it makes sense to sign up early. For example, if you're unable to work and you don't have enough personal savings to cover all your retirement expenses on your own, claiming early could be your best bet.

Your checks likely won't cover all your monthly bills, but they can supplement your savings to help you keep a roof over your head and food on your table. If you choose to delay Social Security, you may have to take on debt to make ends meet. This could leave you in a worse financial situation, one that bigger Social Security checks in the future may not be able to dig you out of.

It could also make sense to sign up early if you're experiencing an unexpected health crisis that leads to a lot of medical bills you have no other way of paying. If the condition shortens your life expectancy, you could actually wind up with a larger lifetime benefit by applying at 62. Waiting carries the risk that you could pass away before you're able to sign up.

However, it's worth noting that when you claim Social Security early, you reduce the survivor benefits your family members are eligible for after you're gone. These are not the same as the spousal benefits your partner can qualify for while you're alive. If you have enough savings to cover your medical expenses on your own, you might prefer not to claim Social Security at all so your family can get more after you're gone.

It's also fine to claim early just because you want to do so. Just make sure you understand how this will affect your checks before you go ahead with it.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.