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Know that the full Social Security retirement age for someone born in 1960 or later is 67.
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Your benefits will be reduced or increased based on whether you claim before or after that point.
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Earning over a certain amount while claiming Social Security early can temporarily reduce your benefit.
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The $23,760 Social Security bonus most retirees completely overlook ›
There are many different working parts to the Social Security program. Some people, including me, would argue that there are too many working parts. Regardless, one thing most people should be able to agree on is that Social Security is one of America’s most-needed and beneficial social programs.
To better understand Social Security, it helps to cut out some of the fluff and focus on the details that matter most. If I could tell retirees one thing about Social Security before claiming benefits, it would be to understand just how important your full retirement age (FRA) is and how much of Social Security revolves around it.
The most important thing that revolves around your FRA is your monthly benefit based on when you claim relative to your FRA. By claiming benefits at your FRA, you’ll receive your primary insurance amount (PIA), which is your base benefit. From there, benefits are adjusted based on whether you claim before or after your FRA.
By claiming before your FRA, your monthly benefit is permanently reduced. Each month you claim early reduces your benefit by 5/9 of 1% monthly for the first 36 months. Each additional month after 36 will further reduce your benefits by 5/12 of 1%.
For example, if your FRA is 67 and you claim benefits at 64, your benefit will be reduced by 20%. If your PIA was $2,000, you’d only receive $1,600. If you claim at 62, your benefit will be reduced by 30%, bringing it down to $1,400.
If you delay benefits past your FRA, they’ll be increased by 2/3 of 1% monthly (called “delayed retirement credits”), which works out to 8% annually. This will occur until you turn 70, at which point benefits are no longer increased. Continuing our example of a PIA of $2,000, delaying benefits until 70 would increase them by 24%, bringing the amount to $2,480.
It’s not just standard benefits that are affected by when you claim relative to your FRA; it’s also spousal benefits. The difference is just how much the benefits are affected.
Claiming spousal benefits early reduces your monthly amount by 25/36 of 1%, up to 36 months. Each additional month further reduces benefits by 5/12 of 1%. For someone whose FRA is 67, this works out to a 25% and 35% reduction by claiming at 64 and 62, respectively.
