Retirees who claim Social Security before reaching their full retirement age (FRA) may miss out on a significant amount of money every month. According to recent data, the average retiree who files early receives reduced benefit payments, resulting in a monthly shortfall of several hundred dollars.
The most popular age to claim Social Security benefits is 62, but this early filing comes at a cost. Even filing just a month before your FRA can result in smaller payments. For example, if your FRA is 67 and you claim benefits at 62, your monthly payments will be permanently reduced by 30%.
The average Social Security benefit for 2024 for retirees who did not claim early was $2,209. However, those who filed early received an average benefit of around $1,609 per month, marking a difference of approximately $600. This trend has continued for the past two years, with retirees missing out on an average of $531 per month in 2021 and $483 per month in 2020.
While filing early may seem tempting, especially for those in need of immediate financial support, it is essential to consider the potential drawbacks. Social Security is facing financial challenges, and its trust funds are projected to run out of funds by around 2034. This could lead to a 20% reduction in benefits. If retirees have already claimed early and are receiving smaller checks, these potential cuts could have a more significant impact.
In addition, Social Security benefits have struggled to keep up with inflation over the past two decades, resulting in a loss of approximately 40% of buying power since 2000. This erosion of benefits, combined with possible future benefit cuts, could make relying solely on Social Security more challenging for retirees.
However, there are situations where claiming early can be a wise move. Retirees who have substantial retirement savings and do not heavily rely on Social Security as their primary income source may find the reduced payments manageable. Choosing to claim early can also be helpful for individuals forced into early retirement because of job loss or health issues, as it provides an affordable way to access funds without depleting savings too quickly.
Ultimately, deciding when to claim Social Security benefits requires careful consideration of individual circumstances and financial goals. Before making a decision, it is important to weigh the advantages and disadvantages of claiming early to ensure the best possible outcome for retirement.