Don't make this Social Security mistake after 62

Turning 62 is a huge milestone for most American workers, because you become eligible for Social Security retirement benefits for the first time.

Unfortunately, many seniors make a serious mistake at this age. It’s an error you don’t want to make, as it could have a detrimental impact on your financial security throughout your retirement years.

Don’t make this Social Security mistake after 62

Deciding to claim Social Security benefits without doing a break-even analysis is the biggest mistake retirees make. 

Once you turn 62, it can be really tempting to get your hands on these retirement benefits. Claiming them could mean being able to leave the workforce. And the money is sitting there, ready to be deposited into your bank account. How can you say no?

But if you don’t do a break-even analysis first, you aren’t going to have a clear idea of whether delaying your benefits could be a better choice.

The reality is, while you could start getting Social Security at age 62, if you wait until 63, 67, 70, or some other chosen age, you could collect more money each month. You do this by avoiding early filing penalties or earning delayed retirement credits. A break-even analysis looks at how long it would take you to break even if you delayed your claim to get this extra money.

It calculates the cost of the months or years of missed checks due to delay and determines how many months it takes for higher future payments to make up for all that unclaimed income. If you expect to live longer, delaying makes a whole lot of sense.

How to do a break-even analysis

So, how can you avoid this mistake and do a break-even analysis? Here are the steps:

• Decide what two ages to compare. If you’re thinking of claiming right away at 62 but aren’t sure if you should wait until full retirement age to avoid early filing penalties, you’d compare ages 62 and 67.
• Determine your benefits at both ages. Your mySocialSecurity account can give you these numbers. If your standard benefit at FRA is $2,000, your reduced benefit at 62 would be 30% smaller or $1,400.
• Calculate the income you’ll miss out on. In this example, you miss five years of $1,400 benefits or $84,000.
• Calculate the extra income you’ll get due to the delay. That’s the difference between $2,000 and $1,400, so you get an extra $600 per month if you wait until 67.
• See how many months it takes to break even. If you have to make up for $84,000 in missed income at a rate of $600 per month, divide $84,000 by $600 to see that it will take you 140 months.

If you expect to live longer than 11.6 more years, you should try to wait to claim benefits. You’ll end up better off.

Doing this math can provide clarity on whether it makes good sense to wait or whether an early claim could be a better choice (keeping in mind that an early claim could also shrink survivor benefits for a spouse if you’re a married high earner).

Go through this exercise as part of your retirement planning before claiming benefits, so you don’t make the mistake of jumping into an early claim at 62 and later regret it.