Too many people make this mistake

You pay social security throughout your life, and you understandably can't wait to start getting money back from the program when you are older, but too many people rush to sign up for benefits as they turn 62 without considering the consequences. This may be the best move for some people, but if you expect to live until the late 80s or 90s, you change your mind by registering as soon as you qualify.

When you start demanding that Social Security affect your benefits

You will be eligible for Social Security at age 62, but you do not need to start claiming benefits right away. In fact, underneath so can hurt you in the long run. The National Insurance Scheme formula bases the check size on the average indexed monthly earnings (AIME) over the 35 highest-earning years. However, if you want to receive this amount, you must wait until full retirement age (FRA) to start claiming. This is 66 or 67 for today's workers.

  Elderly woman, with her hand on her temple, looking at the laptop.

Image Source: Getty Images.

Each month you claim benefits before OFF, your checks are reduced. If you start right away at 62, you will only get 70% of the planned benefit if the FRA is 67 or 75% if the FRA is 66. To put that into perspective, let's consider the average Social Security check, which is 1[ads1],472 dollars per month as of July 2019. If you were entitled to this at age 67 and you start claiming benefits at 62, you would only get $ 1,030 per month.

Your checks do not increase once you hit OFF, so starting early will permanently reduce the amount you receive during life. Let's get back to our previous example. If you started Social Security at 62 and received $ 1,030 per month, that equates to $ 12,360 per year. If you claimed benefits for 30 years – which is not unreasonable, considering the Social Security Administration estimates that one in three 65-year-olds today will live past 90 – you will receive $ 370,800 in a lifetime. If you were expecting 67 to claim benefits, you would receive $ 1,472 per month, or $ 17,664 per year. Assuming the same life expectancy, you will only claim benefits for 25 years in this scenario, adding up to $ 441,600. If you live even longer, the differences between the two amounts increase even more.

There is a third alternative that we have not discussed yet, and that is to postpone pension benefits beyond your FRA. Doing so will increase your checks until you reach the maximum benefit of 70. This is 124% of the planned benefit per check if FRA is 67 or 132% if FRA is 66. If you plan to live a long life , this is probably the way to go if you want the most benefits.

How to Determine the Right Time to Start Demanding Social Security

Demanding Social Security at 62 can be the right decision if you do not expect to live long, but do not know until you estimate your life span at different ages. Instead of working with averages as in the example above, create a Social Security account so you can get personalized estimates of your benefits at 62, OFF and at 70. Estimate life expectancy and numbers to be safe. Then multiply your benefit estimates by the number of months you expect to receive benefits to find out which starting age brings you the most overall.

It's usually better to wait if you think you have a long life, but even if you want to wait, you might not be able to afford it. Delay of benefits puts a greater burden on you for the first few years you retire because you have to cover all your expenses on your own. You have to weigh this, too, and you may need to start getting benefits a little earlier than you want to help cover your living expenses.

Another option for couples is that the low-paid should start demanding benefits right away at 62. This allows the higher income to defer the benefits to 70 when they want to receive more per month. The spouse who has the low earnings will automatically be transferred to a spouse benefit at this time if it is higher than what they are entitled to based on their own work assignment. This works well if one spouse earns significantly more than the other. If both spouses earn about the same, it makes more sense for both to postpone benefits as long as possible.

Taking Social Security benefits at 62 is not inherently wrong, but doing so without understanding the consequences of your choice can cause you to lose tens of thousands of dollars in a lifetime. Choose your starting age carefully so you can get the most out of the insurance and ease the burden on your personal savings.

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