With inflation at a record high and talk of a possible recession next year, recent FERS retirees and pre-retirees may be thinking about filing early for their Social Security benefits. Especially when you add in the fear of Social Security being cut in the future due to program deficits. Before you make a decision, it’s important to understand the pros and cons of filing early.
Pro: You Need The Money To Make Ends Meet
As a federal employee covered under FERS you have the advantage of your monthly annuity in addition to your Social Security and Thrift Savings Plan (TSP). Hopefully, you’ve planned your federal retirement with a professional FRC® trained advisor and you don’t need to file early for Social Security to make ends meet.
However, if something unexpected has happened to create a financial need, it’s important to know you can file as early as age 62 for your benefit. However, your monthly Social Security check will be permanently reduced as much as 30% depending on your birth year.
“In fact, though you’ll get a larger check at 70, you’ll likely be age 80 or older before you hit the break-even point.”
Pro: You Don’t Expect To Live Long
Fling early makes sense if you have a medical condition or a family health history that indicates you won’t profit by delaying Social Security until age 70. In fact, though you’ll get a larger check at 70, you’ll likely be age 80 or older before you hit the break-even point. The break-even point is the age at which you start to come out ahead because you delayed your Social Security benefit to earn 8% more each year.
Con: Your COLAs Will Be Smaller
As mentioned above, when you file early at age 62, your monthly Social Security benefit is permanently reduced. When you collect a smaller benefit, your Cost-Of-Living Adjustments will be lower. For example, in 2023, the COLA increase is 8.7%. If you waited until your full retirement age or delayed until age 70, you’ll get a much larger bump in your benefit than someone who collected a reduced benefit at age 62.
Con: You May Deplete Your TSP Nest Egg Faster
Since filing early can permanently reduce your monthly Social Security benefit by as much as 30%, you may find yourself tapping into your TSP nest egg earlier than you originally planned. If this sounds confusing, you’re not alone.
Consider working with an FRC® trained advisor who understands your federal benefits and can help you estimate your longevity, health, and other factors, to develop the best Social Security strategy for your needs.
