Claiming Social Security at 62 Could Cost You More Than You Realize

Key Points

Age 62 is the soonest you can sign up for Social Security.

Filing for benefits then will result in a big reduction.

You'll also be looking at smaller COLAs and less leeway to ease off of portfolio withdrawals.

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For many retirees, age 62 feels like an important milestone. It's the earliest age you can claim Social Security. And after decades of hard work, the idea of finally getting a monthly benefits check can be very appealing.

Now, you may be aware that claiming Social Security at 62 will reduce your monthly benefits permanently. But that's not the only problem with taking benefits as early as possible. Filing early could have other consequences you don't realize until it's too late.

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You're also locking in smaller COLAs

When you claim Social Security at 62, your monthly benefit is reduced for life. Depending on your full retirement age, that reduction could be as much as 30%. But an early filing could also leave you with smaller cost-of-living adjustments (COLAs) for life.

COLAs are applied as a percentage of your current benefit. A 3% COLA applied to a $2,000 benefit is going to be worth more than a 3% COLA on a $1,400 benefit. So a smaller starting benefit puts you at a financial disadvantage for all of retirement.

You get less flexibility during a market downturn

Ideally, Social Security is only a portion of your retirement income, and you also have an IRA or 401(k) to tap. But during a market downturn, it's a good idea to withdraw from your savings minimally to avoid locking in permanent losses.

The problem with a reduced Social Security check due to taking benefits at 62 is that you may not be able to cut your portfolio withdrawals when the market is doing poorly. Or, you may only be able to cut back a little. That could force you to sell more assets at lower prices, making it much harder for your savings to recover overall.

Consider the decision carefully

Claiming Social Security at 62 is not automatically a mistake. For some retirees -- those with health concerns, immediate financial needs, or shorter life expectancies -- it may be the right choice. But if you're going to file for benefits at 62, make sure you understand that you aren't just accepting a smaller monthly check.

By filing at 62, you're also signing up for less valuable COLAs and less leeway to preserve your savings during periods of market declines. Over time, both of those things could make a huge difference in your finances, especially if there's a prolonged market crash or a period of higher-than-average inflation that makes those COLAs all the more crucial.

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