The $50,000 Social Security Mistake: Why Claiming at 62 Could Cost You a Fortune

Mary Thompson from Phoenix thought she had it all figured out. At 62, she'd finally paid off her mortgage and decided to claim Social Security early while continuing to work part-time at Target. Within six months, she realized she'd made a $50,000 mistake.

Here's what happened: Mary's full retirement age was 66 years and 8 months, but by claiming at 62, her monthly benefit dropped from $1,200 to $850. That $350 monthly reduction doesn't sound devastating until you run the math over 20+ years.

The Real Cost of Early Claims Goes Beyond the Monthly Check

Most people know claiming Social Security early reduces your monthly payment. What they don't realize is how the math compounds over time.

Let's use Mary's numbers:

• Full benefit at age 66 and 8 months: $1,200/month
• Early benefit at 62: $850/month
• Monthly difference: $350
• Annual difference: $4,200

Over 20 years, that's $84,000 in lost income. Even accounting for the four years and eight months she received payments early (about $47,600), she's still behind by roughly $36,400.

But wait – there's more.

Cost of Living Adjustments Magnify the Loss

Social Security benefits increase each year with cost-of-living adjustments (COLAs). In 2024, benefits increased by 3.2%. In 2023, it was 8.7%.

These percentage increases apply to your base benefit amount. Mary's COLA increases will always be calculated on her reduced $850 benefit, not the full $1,200 she could have received.

Over time, this creates a widening gap. If COLAs average 3% annually, Mary's lifetime loss balloons to more than $50,000.

The Surprising Truth About Working While Collecting Early

Here's where Mary's mistake got expensive fast.

If you claim Social Security before full retirement age and keep working, Social Security claws back $1 for every $2 you earn above $22,320 (2024 limit). Mary's part-time Target job paid $25,000 annually, putting her $2,680 over the limit.

Social Security reduced her monthly benefits by $111 ($2,680 ÷ 2 ÷ 12 months). Her $850 monthly benefit dropped to $739.

The good news? You get those withheld benefits back later through higher monthly payments. The bad news? It takes years to break even, and many people don't understand this recalculation happens automatically.

When Claiming Early Actually Makes Sense

Despite the math, claiming Social Security at 62 isn't always wrong. Here are three scenarios where it works:

1. Health Concerns

If you have serious health issues and don't expect to live past 78-80, claiming early maximizes your total lifetime benefits. This is purely actuarial – you're better off taking guaranteed money now rather than betting on longevity you might not have.

2. Spousal Benefit Strategy

Married couples have more complex calculations. Sometimes it makes sense for the lower-earning spouse to claim early while the higher earner delays until age 70. This strategy requires careful analysis but can maximize household Social Security income.

3. Bridge to Medicare

If you lose employer health insurance before 65 and face expensive COBRA premiums, Social Security income might help bridge the gap. Just make sure you're not working above the earnings limit.

The Age 70 Sweet Spot Most People Ignore

While everyone talks about claiming early or at full retirement age, the best financial move is often waiting until 70.

For each year you delay past full retirement age, your benefit increases by 8%. There's no investment that guarantees an 8% annual return with zero risk.

Using Mary's example again:

• Benefit at full retirement age (66 and 8 months): $1,200
• Benefit at age 70: $1,621 (32% increase)
• Monthly difference vs. early claiming: $771
• Annual difference: $9,252

That's real money.

How to Fix an Early Claiming Mistake

If you've already claimed early like Mary, you have limited options:

The 12-Month Do-Over

You can withdraw your Social Security application within 12 months of first receiving benefits. You'll need to repay every dollar you've received, but you can then re-apply later for higher benefits.

This only works if you have cash available to repay Social Security and can afford to wait.

Suspend and Restart

Once you reach full retirement age, you can suspend your benefits and earn delayed retirement credits until age 70. Mary could do this at 66 and 8 months, but she'd still be stuck with the permanent reduction from claiming early.

Calculate Your Personal Break-Even Point

The decision isn't just about maximizing total lifetime benefits. You need to consider:

• Your current financial needs
• Health status and family longevity
• Other retirement income sources
• Spouse's Social Security strategy
• Tax implications of different claiming strategies

Social Security's online calculator at ssa.gov shows your estimated benefits at different claiming ages. Spend 20 minutes running scenarios before making a decision that lasts the rest of your life.

Your Next Move

If you're within five years of claiming Social Security, request your Social Security statement today. Look at the difference between claiming at 62, full retirement age, and 70. Then ask yourself: can you afford not to wait?

For most people, the answer is no. The guaranteed 8% return from delaying benefits beats almost any other risk-free investment available today.