Claiming Social Security at 62? Don't Overlook This 1 Thing.

Key Points

• Age 62 is the earliest age to sign up for Social Security.

• Claiming benefits at that point will reduce them substantially for life.

• You'll also be putting yourself in a position where it becomes harder to keep up with inflation.

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

One nice thing about Social Security is that you get a choice on when to sign up. The earliest age to claim Social Security is 62. From that point onward, you can file for benefits whenever you please.

Of course, there's a limit as to how long you should wait. Your full retirement age is 67 if you were born in 1960 or later, and that's when you get to collect your monthly benefits without a reduction.

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You can also delay your claim past full retirement age for boosted benefits. Each year you hold off, up until you turn 70, gives your benefits an 8% boost. There's no financial incentive to delay Social Security past 70, so that's generally considered the latest filing age for seniors, even though you can certainly wait longer to file if you so choose.

Because 62 is the earliest age to claim Social Security, it tends to be a popular filing age. After all, it's hard to say no to monthly benefits that could be yours sooner. But if you're going to claim Social Security at 62, it's important to remember one key thing.

It's not just a reduction in benefits you have to worry about

For each month you claim Social Security ahead of full retirement age, your benefits are reduced on a permanent basis. And claiming Social Security at 62 with a full retirement age of 67 means accepting a roughly 30% lower monthly benefit for life.

But that's not the only issue with claiming Social Security very early. The other issue is that a smaller monthly benefit means you'll be looking at a smaller cost-of-living adjustment (COLA) each year.

The purpose of Social Security's automatic COLAs is to help seniors maintain their buying power as inflation drives costs up. The less money you're entitled to each month from Social Security, the less your annual COLAs will be worth.

Case in point: Let's say you'd normally get a $2,000 monthly benefit at 67, but you file at 62 instead and reduce your monthly payments to $1,400. If Social Security then gets a 2.5% COLA, a $2,000 monthly benefit would increase $50. A $1,400 benefit, on the other hand, would only rise by $35.

Over time, smaller COLAs could become problematic, especially if you find that your retirement savings aren't doing a great job of keeping up with inflation. So it's important that you look at the big picture before deciding that claiming Social Security at 62 makes sense.

It's a really big decision

Your Social Security filing age isn't a decision to take lightly. There are a number of factors that should go into it, including your savings level, income needs, health, and life expectancy.

If you decide to file for Social Security at 62, you'll be in good company. But it's important to realize that an early claim doesn't just mean smaller monthly benefits for life. It also means smaller COLAs for life, which could make it a struggle to keep up with inflation throughout retirement.

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