Despite the fact that millions of seniors rely on Social Security heavily in retirement, there’s a lot of misinformation about the program. And sometimes, all it takes is a single misunderstanding to wind up with a lot less money in benefits than you may have anticipated. Such could be your reality if you wind up falling victim to this avoidable trap.
Claiming benefits early could backfire on you
Your monthly Social Security benefit is based on your wage history — specifically, the amount you earn during your 35 most profitable years in the labor force. You’re then entitled to that benefit in its entirety once you reach full retirement age, or FRA.
FRA is not the same for everyone. It’s based on the year you were born, as follows:
Year of Birth
Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 or any time after
However, you’re allowed to claim Social Security before or after FRA. If you delay your filing beyond FRA, your benefit will increase. But if you file ahead of FRA, that benefit will shrink.
The earliest you’re allowed to sign up for Social Security is age 62. If you file at that age with an FRA of 67, your monthly benefit will be reduced by 30%.
But here’s one thing some seniors don’t realize until it’s too late — if you file for Social Security early, your full benefit won’t be restored once you reach FRA. Rather, you’ll be stuck with that lower benefit for life.
Say you’re entitled to a $1,500 benefit based on your earnings history at an FRA of 67. Filing at 62 will leave you with $1,050 a month instead. But unless you withdraw your benefit application within a year and repay the Social Security Administration all of the money it paid you, you’ll be stuck with that $1,050 for the rest of your retirement.
Now to be clear, when we talk about being stuck with the same benefit forever, that doesn’t account for the cost-of-living increases you may be entitled to through the years. Your $1,050 benefit may, for example, increase to $1,070 after one year and $1,090 after two years to account for the raises that seniors on Social Security are often entitled to. But your primary benefit — that $1,050 — won’t magically rise to $1,500 once you turn 67, and that’s something you’ll need to be prepared for.
Know the rules
A lot of people file for Social Security without even knowing their FRA in the first place. Others don’t realize it’s possible to get a do-over if you file too early. The best way to avoid making a decision you regret for years on end is to read up on how Social Security works. Understanding the program’s nuances will help you land on the best filing age based on your financial needs and life expectancy.
In fact, it’s a good idea to educate yourself on different filing strategies. In some cases, claiming benefits at the earliest age of 62 is a smart move. The key is to do your research and know the rules so you can feel confident moving forward with whatever decision you end up making.
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