This Overlooked Social Security Rule Could Cost You Thousands in Retirement
When it comes to claiming Social Security benefits, understanding how the program works and doing proper planning is key.
Receiving Social Security checks too early can cost you thousands of dollars in retirement. Here’s what you need to know about Social Security to help ensure you don’t leave money on the table.
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How the rule works
A potentially overlooked rule regarding Social Security is that if you claim as early as age 62 — when you're allowed to start receiving benefits — your benefit amount will be lower than if you wait.
The Social Security Administration says that "if you turn age 62 in 2026, your benefit would be about 30% lower than it would be at your full retirement age of 67." Plus, it will add 8% to your benefit for each full year you delay receiving Social Security benefits beyond full retirement age.
Social Security looks at your work history, earnings and claiming age when calculating your reward. The maximum benefit in 2026 if you withdraw at age 62 is $2,969 per month, but $5,181 per month if you withdraw at age 70.
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Give your benefits time to grow
Taking out benefits too early can be an expensive mistake in retirement. While delaying benefits translates to a higher benefit, there’s another reason you may want to work a few extra years.
Your lifetime earnings are part of the calculation that determines how much you receive. Social Security reviews your 35 highest earning years. Working an extra year means you can replace a lower-earning year with a higher-earning one (assuming you’re making more money now than during your lowest-earning year). That will effectively boost your lifetime earnings. You can also use extra income from working longer to grow your nest egg.
Working a few extra years — even if it means staying at your current job or working at a part-time job — can be extremely beneficial in the long run.
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The bridge strategy
Some people retire at 65 once they qualify for Medicare, but still hold off on claiming Social Security so they can snag a bigger benefit. They tap their retirement savings in 401(k)s, individual retirement accounts (IRAs) and similar accounts. This strategy of withdrawing savings and investments between retirement and when you claim Social Security is called the “bridge strategy.”
There’s another reason this plan makes sense for many people: required minimum distributions (RMDs). You are required to start withdrawing money when you turn age 73, and withdrawing some money early can help lower your RMDs later in life.
That’s because RMDs are calculated using a percentage of your portfolio. The higher your balance, the higher your RMDs — and more you may need to pay in taxes if you’re withdrawing from a traditional retirement account.
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