Early Social Security Claims Can Cost Retirees Thousands

The Real Cost of Taking Social Security at 62: A Financial Planner’s Perspective

After advising thousands of clients on retirement timing over the past two decades, I can tell you the most expensive mistake I see is claiming Social Security at 62 without understanding the math. Yes, you can start collecting benefits the moment you hit 62. No, that doesn’t mean you should.

Let me show you exactly what’s at stake here, because the Social Security Administration doesn’t make this crystal clear in their communications.

The Numbers That Should Make You Think Twice

Here’s the brutal math. If you were born in 1960 or later, your full retirement age is 67. Claim at 62, and you’ll take a 30% haircut on your benefits. Permanently.

Let’s use real numbers. Say your full retirement benefit would be $2,500 at age 67. Take it at 62, and you’re looking at $1,750. That’s $750 less every single month, $9,000 less per year. Over a 25-year retirement? You’ve left $225,000 on the table.

I had a client last year, a mechanical engineer who’d run every calculation imaginable on his investments but never properly analyzed his Social Security timing. When I showed him these numbers, he literally pushed back from the table and said, “Why doesn’t anyone explain it this way?”

Good question. Here’s my theory: the system assumes you’ll figure it out yourself.

When Early Claims Actually Make Sense (Spoiler: Rarely)

Look, I’m not saying nobody should claim at 62. In my practice, I’ve recommended early claims in specific situations:

First, if you have serious health issues. I worked with a client battling stage 3 cancer who needed the income for treatment. Taking reduced benefits made absolute sense – waiting for a bigger check you might never see is foolish.

Second, if you’re drowning financially and have zero other options. But even then, I push clients to explore everything else first. Part-time work, downsizing, reverse mortgages – all potentially better than permanently reducing your Social Security.

Third, if you’re the lower earner in a married couple with a significant age gap. Sometimes claiming early allows the household to delay the higher earner’s benefit, maximizing survivor benefits. This requires careful coordination and usually professional guidance.

The Hidden Traps of Early Claiming

Beyond the obvious benefit reduction, early claimers face the earnings test. In 2024, if you’re under full retirement age and earn more than $22,320, Social Security withholds $1 for every $2 over the limit. I’ve seen retirees take part-time jobs, not realize this rule, and essentially work for free.

Then there’s the tax torpedo. Add Social Security income to your other retirement income, and suddenly up to 85% of your benefits become taxable. Early claimers often haven’t planned for this, leading to nasty April surprises.

Medicare eligibility at 65 creates another wrinkle. Claim Social Security at 62, and you’ve got three years of finding health insurance. COBRA? Private insurance? The costs can devour those early Social Security checks.

The Strategic Approach to Social Security Timing

Here’s how I guide clients through this decision. First, we run what I call the “longevity lottery” analysis. Pull up the Social Security calculator and compare total lifetime benefits at different claiming ages.

The break-even point between claiming at 62 versus 67 typically falls around age 78-79. Between 62 and 70? Usually 80-82. Given that a healthy 62-year-old man has a 50% chance of living to 85, and a woman to 87, the math favors waiting.

But math isn’t everything. I also assess what I call “sleep quality income.” Can you cover your essential expenses without Social Security? If yes, you have flexibility. If no, we need to strategize differently.

Next, we examine your entire retirement income picture. Pensions, 401(k)s, IRAs, rental income, part-time work – everything goes on the table. Often, we find ways to bridge those years between 62 and 67 without touching Social Security.

The Optimal Strategy Most People Miss

Here’s something the Social Security Administration won’t tell you: the best age to collect Social Security for most healthy Americans is 70. Every year you delay past full retirement age, your benefit grows by 8%. Guaranteed. Where else can you get an 8% guaranteed return these days?

I had a couple come in last month, both 66. They were about to claim because “everyone we know claims at full retirement age.” I showed them that waiting until 70 would increase their combined annual benefits by $19,000. Over their expected lifetimes? Nearly $400,000 in additional benefits.

They’re now working part-time jobs they enjoy, traveling modestly, and letting their Social Security grow. Smart move.

The Three-Step Analysis You Need to Do

If you’re approaching 62, here’s your homework:

Step 1: Calculate your actual expenses. Not what you think you’ll spend – what you actually spend. Track everything for three months. Most retirees underestimate by 20-30%.

Step 2: Project your income without Social Security. Include everything – retirement accounts, pensions, part-time work potential. Can you cover expenses until 67? Until 70?

Step 3: Run scenarios using the SSA’s calculators. Compare total lifetime benefits, not just monthly amounts. Factor in taxes, Medicare premiums, and inflation.

The Bottom Line on Early Social Security Claims

After two decades in this business, I’ve seen the aftermath of hasty Social Security decisions. Clients in their 80s, struggling on reduced benefits, wishing they’d waited. It’s heartbreaking and preventable.

Yes, there’s something psychologically appealing about claiming at 62. You’ve paid in for decades; you want your money back. I get it. But Social Security isn’t a savings account – it’s longevity insurance. The longer you live, the more valuable delayed claiming becomes.

My advice? Unless you’re facing health issues or genuine financial hardship, resist the urge to claim at 62. Run the numbers. Consider working a few more years or living more modestly to delay. Your 75-year-old self will thank your 62-year-old self for the patience.

Remember, this decision is irreversible. Once you claim, that reduction is locked in forever. Take your time, do the analysis, and if needed, invest in a few hours with a fee-only financial planner. The cost of professional advice pales compared to the cost of claiming too early.

Social Security might be your largest retirement asset. Treat it that way.