It’s not something you’ll want to gloss over.
Workers are constantly advised not to rely too heavily on Social Security. That’s because those benefits generally will not provide enough income for retirees to maintain the standard of living they’re used to.
Still, many seniors do inevitably wind up depending on Social Security to make ends meet. And that’s why it’s important to understand the consequences of filing at different ages.
The monthly benefit you’re entitled to from Social Security will be based on your wage history — specifically, the amount of earnings you took in during your 35 most-profitable years in the workforce. From there, you’re entitled to your full monthly Social Security benefit at full retirement age, or FRA.
Some people, however, claim benefits without knowing their FRA. And that’s a mistake you’ll want to avoid.
Know that number
FRA isn’t a universal age. Rather, it hinges on your year of birth. Here’s a table summarizing what FRA looks like:
|
If Your Year of Birth Is: |
Full Retirement Age Is: |
|---|---|
|
1943-1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 or later |
67 |
Data source: Social Security Administration.
Now you’re allowed to sign up for Social Security as early as age 62. And that happens to be a very popular age for claiming benefits. But for each month you sign up for Social Security ahead of FRA, your monthly benefit gets reduced. And if your FRA is 67 and you file at 62, you’ll be looking at a 30% cut — for life.
Even if you don’t claim benefits at the earliest possible age, filing ahead of FRA could still have consequences. Let’s imagine you sign up for Social Security at age 65 because that’s when Medicare kicks in and you assume it’s also when you’re entitled to collect your monthly benefit in full. If your FRA is 67, that means you’ll shrink that payment by over 13%. And if you don’t have a particularly large nest egg, that could be very problematic.
That’s why it’s so important to learn your FRA. Knowing that number could spare you from making a very poor choice.
Does it ever make sense to file early?
Of course. For some people, claiming benefits ahead of FRA absolutely pays.
If your health is very poor, for example, and you don’t expect to live a very long life, then it makes sense to start collecting benefits as soon as you’re eligible for them. Doing so could result in a higher lifetime payout despite slashing your benefit on a monthly basis.
The point, however, is that before you land on any Social Security filing age, you should know what your FRA looks like. Having that information will put you in a better position to make the right call — and avoid what could potentially be a lifetime of regret.
It’s also worth noting that for each year you delay your Social Security filing beyond FRA, your benefit increases by 8%. And that increase lasts on a permanent basis.
Once you reach age 70, you can no longer grow your benefit. But just as it can definitely pay to claim Social Security early, so too can waiting end up being a very smart decision.
