The Less Obvious Reason You Shouldn't Claim Social Security Early

When you sit down to think about when to claim Social Security, it's important to consider your options carefully. That's because those benefits could end up becoming an important retirement income stream for you.

You may be tempted to file for benefits ahead of full retirement age to get your money sooner. That option is on the table once you turn 62. But for each month you file for Social Security ahead of full retirement age, your monthly benefits are permanently reduced.

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You may be willing to accept a reduced monthly benefit for the promise of having that money start earlier. After all, you don't know how long you'll live. And if you end up passing away in your early or mid-70s, filing early could end up putting more lifetime Social Security income in your pocket.

Still, claiming benefits early means you're slashing your one guaranteed retirement income stream. You might manage to build a nice IRA or 401(k) balance in time for retirement. But if market conditions sour, your nest egg could run out sooner than expected. Social Security, on the other hand, will pay you your monthly benefits for life.

You may be inclined to wait on Social Security so as to not reduce those benefits for yourself. But there's a less obvious reason not to file for benefits early.

You may have more than your own needs to think about

When you're single, you may not have to take anyone else's financial needs into account when deciding when to claim Social Security. But if you're married, you should know that the decisions you make with regard to Social Security could impact your spouse both when you're alive and after you're gone.

If you claim Social Security ahead of full retirement age, you could end up reducing your partner's spousal benefits, too. And those benefits may be a key income stream for your household if you aren't bringing a lot of savings into retirement.

You should also know that once you pass away, your spouse will be entitled to survivor benefits from Social Security. And those are worth 100% of the benefit you were receiving at the time of your passing.

If you file for Social Security early and reduce your monthly benefits, you'll leave your spouse with smaller survivor benefits. That may not be a problem if you have piles of savings and expect your IRA or 401(k) to provide the bulk of your retirement income. It may also not be a problem if you have a generous life insurance policy set up for your spouse to benefit from.

But if you expect your spouse to rely heavily on Social Security in your absence, then you may want to think twice about claiming benefits early. Reducing them won't just impact your finances -- it could leave your spouse with an ongoing financial struggle to deal with after you're gone.

Look at the big picture

Claiming Social Security early isn't always an unwise move. There are plenty of situations where it makes sense to file ahead of full retirement age, such as if your health is poor or continuing to work isn't possible.

The point, however, is to consider all of the consequences of putting in an early claim. If you file for Social Security early, you won't just reduce your own benefits. You could end up reducing your partner's spousal and survivor benefits, too. That's a good reason to think about holding off as long as you can.

That may not mean waiting until full retirement age. But filing at 65, for example, will leave you and your spouse with larger monthly benefits than if you were to file at the earliest age of 62. And over the course of a long retirement, that could make a huge difference.

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