Boomers' eagerness to retire could cost them

— -- They're known as one of the most rebellious generations in U.S. history, not to mention the largest. This year, the oldest of the 79 million baby boomers born from 1946 through 1964 turn 62, which means they become eligible for Social Security. The boomers — projected to live longer than any previous generation of Americans — will have the longest retirements, too.

Can they afford to retire? How far will their Social Security checks go? The reality is this: Many of those who retire early will accept reduced benefits — and in doing so will risk falling short of their financial needs.

So what will this generation of retirees do?

About half of the soon-to-be-62-year-olds are expected to do just what their parents generally did: file for Social Security benefits at the youngest possible age, in exchange for a smaller benefit than they'd get if they waited to retire at 66. Many are relying on conventional wisdom that suggests they're better off filing for Social Security as soon as possible.

Yet if they follow that advice, millions of the oldest boomers may be about to make a colossal error — one that would be magnified by their record-setting longevity.

Over time, taking benefits early could mean a smaller payout, hefty taxes on their retirement savings and a heightened risk of outliving their money. In fact, the roughly 50% of the oldest boomers who the Social Security Administration estimates will tap their benefits starting this year will absorb a permanent 25% cut in benefits.

Up to three-quarters of them are expected to file for benefits before age 66, their full retirement age. How much their benefits will shrink depends on how close they are to full retirement age once they begin to take those benefits.

Now consider those who wait till after age 66: They'll enjoy an 8% annual increase in benefits until age 70. (After that, there's no advantage to delaying benefits.)

Yet on the most fateful financial decision most of them will make, only about 5% of retirees wait until after they've reached full retirement age to claim benefits. And it's a trend that's likely to persist, says Stephen Goss, chief actuary for the Social Security Administration.

Many retirees who plan to start taking their benefits early assume it won't make much difference over time. One of them, John McGinnis, 61, an insurance claims manager in Jacksonville, plans to file for Social Security next year.

"I'm going to take them at the reduced rate, figuring I should live long enough that it will even out to my advantage," McGinnis says.

In reality, boomers who live the longest stand to lose the most by taking benefits early, according to an analysis by the American Academy of Actuaries.

Retirees who file for Social Security at age 62 and live into their mid-90s could lose nearly $150,000 in benefits, says Ron Gebhardtsbauer, senior pension fellow with the academy.

Among the factors that could hurt boomers who take early Social Security benefits at age 62:

• Longevity.

Laurie Ditzel, a retired teacher in Fairport, N.Y., turned 62 on Jan. 5. Most of her older friends filed for benefits once they turned 62. Her own inclination, though, is to wait.