You’ll often hear that it’s important to be strategic when filing for Social Security. That’s because the monthly benefit you lock in will be the same benefit you continue to collect forever.
But actually, that’s not always true. Here’s why your benefit could end up changing.
It’s all about second chances
Your monthly Social Security benefit is unique to you, and it’s based on the wages you earn during your 35 highest-paid years in the labor force. You’re then entitled to that benefit once you reach full retirement age, or FRA.
FRA, like your benefit, isn’t universal. Rather, it hinges on your year of birth, as follows:
Year of Birth
Full Retirement Age
1943 to 1954
66 and two months
66 and four months
66 and six months
66 and eight months
66 and 10 months
Now you’re allowed to file for Social Security as early as age 62. But you should know that doing so will reduce your benefit by up to 30%. The exact reduction you face will depend on your FRA.
Many seniors rush to claim benefits at 62 because they want their money as soon as possible. But some wind up regretting it.
Seniors who regret filing early are often stuck with a lower monthly benefit on a permanent basis. But those who act quickly could have a different experience.
One lesser-known Social Security rule is that you’re allowed one do-over in your lifetime when it comes to claiming benefits. If you sign up too early, you can undo your filing by withdrawing your application for benefits within a year, and also, by repaying all of the money you received in benefits during that time. If you meet those criteria, you’ll have the option to claim benefits again at a later age, thereby locking in a higher monthly payment.
Of course, it’s easy enough to fill out a form withdrawing a benefits application, but repaying what could be up to a year’s worth of benefits is a different story. It’s for this reason that many seniors who claim Social Security early do, in fact, get stuck with a lower monthly benefit forever. But if you realize your mistake quickly enough, you can avoid that fate.
What about COLAs?
When we talk about locking in a monthly Social Security benefit for life, we’re really talking about your base benefit. Each year, benefits are subject to a cost-of-living adjustment, or COLA, that could result in a modest raise.
So yes, if you claim Social Security at age 62 and lock in a monthly benefit of $1,200 by going that route, even if you don’t undo your filing, you won’t necessarily be limited to $1,200 a month for the rest of your life. Your benefit could, for example, increase to $1,224 your second year of collecting Social Security, and then to $1,242 the year after.
The decision to claim Social Security is a big one, and one you shouldn’t rush into. Before you sign up for benefits, think about how much income you need Social Security to provide.
Not only might it make sense to wait for your FRA to file, but it could also pay to delay your claim beyond your FRA. Doing so will boost your benefits so you have more income to look forward to throughout your retirement.
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