Let’s dive into what claiming Social Security at 62 means for your monthly income and explore how the Social Security Administration (SSA) calculates these benefits.
How Claiming Social Security at 62 Impacts Monthly Benefits
While the opportunity to begin benefits at age 62 can be tempting, the trade-off is a permanently reduced benefit. The reduction percentage hinges on how early you claim in relation to your full retirement age (FRA). For individuals whose FRA is 67, claiming at 62 results in a 30% reduction in monthly benefits. For some, receiving smaller checks for a longer period may be worth it, while others may prefer to wait for larger payments over a shorter span.
Here’s a snapshot of what the average monthly Social Security benefit looks like for those claiming at 62:
| Gender | Average Monthly Benefit at 62 |
|---|---|
| All | $1,275 |
| Men | $1,421 |
| Women | $1,141 |
Source: Social Security Administration (SSA)
This variation between men’s and women’s benefits is largely due to lifetime earnings differences. Men typically earn higher incomes, resulting in larger Social Security checks. Understanding this discrepancy is essential when planning retirement finances, particularly for women who may rely on additional sources to cover the income gap.
How Social Security Calculates Your Monthly Benefit
Social Security benefits depend on your lifetime earnings and how much you’ve paid in Social Security taxes over your working years. Here’s a closer look at the calculation process.
- Lifetime Earnings Assessment: Social Security reviews your earnings over the 35 highest-earning years of your career. The SSA adjusts these earnings to account for inflation, bringing them to current dollar value—a process known as “indexing.”
- AIME Calculation: After adjusting for inflation, the SSA adds up the indexed earnings from your top 35 years and divides the total by 420 months (the total months in 35 years) to obtain your Average Indexed Monthly Earnings (AIME).
- For individuals with fewer than 35 years of earnings, any missing years are calculated as zero, which will lower the AIME.
- Primary Insurance Amount (PIA) Calculation: The AIME then determines your Primary Insurance Amount (PIA), the monthly benefit you would receive at your FRA. The SSA uses specific “bend points” in a formula to calculate your PIA, ensuring higher earners get larger benefits, but with diminishing returns.
- Your PIA is the benchmark amount of your monthly benefit at full retirement age, based on your birth year.
Choosing when to claim Social Security benefits is a decision that will affect your monthly income for years to come. Analyzing your lifetime earnings, monthly needs, and the potential reductions or increases in your benefit can help you decide the best time to start drawing Social Security benefits for a financially secure retirement.