The decision to activate retirement benefits when reaching the age of 62 is a personal crossroads for millions of Americans. Nearly 90% of people over 65 receive benefits from the program. And the choice of the exact moment to claim them can determine decades of economic stability or precariousness.
The Social Security Administration (SSA) allows you to start receiving retirement benefits as early as age 62, but this option has permanent consequences. If the full retirement age is 67 and you claim benefits at 62, you will only receive 70% of the full amount for the rest of your life. This reduction is not temporary or adjustable; it is an irreversible decision that affects every monthly check until death.
The permanent penalty for early retirement
The situation becomes even more complicated when considering cost-of-living adjustments (known as COLA). The reduction also impacts any future COLA adjustments, as increases are calculated as a percentage of the current benefit. Starting with a smaller base means smaller increases year after year, amplifying the financial impact over time.
The structure of reduction of benefits operates under a specific formula established by the SSA. Early retirement will reduce benefits by 5/9 of 1% for each month before the normal retirement age, up to 36 months. If the number of months exceeds 36, the benefit is further reduced by 5/12 of 1% per month.
The 30% Loss if You Claim Retirement Too Early
To put these figures into context, a worker born in 1963 who applies for benefits in 2025 will face measurable consequences. If they were to start receiving benefits at age 62, they would receive only 70% of the amount they would have received had they waited until 67, their full retirement age (FRA). This is not a variable estimate; it is the direct result of current federal policy.
The specific numbers reveal the magnitude of the difference. If someone retires at age 62 in 2026, their benefit would be $2,969. If they retire at age 70 in 2026, their benefit would be $5,181. The gap between the two options exceeds $2,200 per month for those who reach the maximum Social Security benefit.
The Hidden and Harsh Costs of Retiring at 62
Beyond the direct reduction in monthly payments, there are two additional factors that erode the purchasing power of those who opt for early retirement. The first is related to the calculation of the benefit itself.
If you begin collecting Social Security retirement benefits at age 62, the Social Security Administration must use earnings from your 20s or early 30s in your benefit calculation. If you wait until age 67 to receive retirement benefits, earnings from the previous five years can be included in the calculation. Most people earn less during the early years of their careers than in later years, resulting in an additional unofficial cut.
The second hidden factor involves the costs of health insurance before qualifying for Medicare. Collecting retirement benefits at 62 can also reduce disposable income due to health insurance costs. Medicare starts at age 65 for most, creating a three-year gap that must be filled with private resources or through Continuation of Health Coverage (COBRA).
The Health Insurance Gap Between Ages 62 and 65
The data on health insurance costs during this interim period is revealing. Without any financial assistance, a 62-year-old in 2025 would pay an average of $1,116 per month nationwide for a popular silver-level plan. A bronze plan, which offers the lowest premiums but also the least coverage, costs an average of $857 per month.
These expenses add up quickly. The maximum out-of-pocket cost for any level in 2025 is $9,200 for an individual and $18,400 for a family. These figures represent substantial outlays that retirees must cover from their reduced Social Security benefits or personal savings.
The situation becomes more complex when considering Medicare premiums once eligibility is reached. The monthly standard for Part B was set at $202.90 in 2026, an increase of $17.90, or nearly 10 percent, from the 2025 premium of $185.00. This increase exceeds the Social Security cost-of-living adjustment, further eroding purchasing power.
Proof of Income and Additional Penalties
For those who continue working while receiving benefits before reaching full retirement age, there is an additional layer of complexity. If Social Security benefits are activated before full retirement age and earnings exceed $23,400, Social Security will assess a penalty of $1 for every $2 earned above that limit (a 50% penalty).
The earnings limit is adjusted annually. For beneficiaries under full retirement age throughout the year in 2026: The annual earnings limit is $24,480; $1 will be withheld in benefits for every $2 earned above this limit. This withholding can completely eliminate monthly payments for workers who continue to have significant income.
However, there is a little-known aspect of this policy. Not many taxpayers realize that Social Security actually reimburses penalties once full retirement age is reached. Although the withheld amounts are eventually recovered through a recalculation of benefits, this process does not restore the time value of the money lost during the years of withholding.
What You Lose by Not Waiting Until You’re 70 Years Old
An analysis of the benefits of delaying a claim reveals a significantly different financial picture. For each year a benefit claim is delayed beyond full retirement age, up to age 70, delayed retirement credits are earned at a rate of 8% per year.
The math is simple, actually:Someone with a full retirement age of 67 who waits until 70 to claim will receive 124% of their full benefit amount. This difference translates into substantial amounts over time.
