Social Security could end up being a crucial source of income for you once you retire. It may even end up being your primary income source. That’s why it’s important to understand the implications of signing up at different ages.
You can first sign up for Social Security at age 62, but going that route will leave you with a reduced benefit. In fact, you’re not entitled to your full monthly benefit based on your wage history until full retirement age (FRA) kicks in. FRA is dependent on your year of birth, 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 later
Many seniors end up filing for Social Security ahead of FRA to get their money sooner. If that’s a route you’re planning to take, make sure you know these rules first.
1. Your benefit won’t be bumped up to its full amount at FRA
Some people are of the impression that if they claim Social Security early and reduce their benefit in the process, their benefit will be restored to its full amount upon reaching FRA. Not so.
If you lock in a lower monthly benefit by claiming Social Security early, you’ll generally be stuck with that reduced amount for the rest of your retirement. The only exception is if you undo your filing, and there are strict rules there, too.
For one thing, you can only undo your filing once in your lifetime. And you must withdraw your application for benefits within a year of claiming them for this solution to work.
Furthermore, to undo your filing and get the option to sign up for benefits again at a later age, you’ll need to repay the Social Security Administration all of the money it paid you. That’s something you might really struggle to do.
As such, if you end up filing for Social Security early, you should assume that the benefit you start out collecting will be the same sum you receive for the rest of your life. And you should also make sure you’re OK with that lower benefit — which may not be the case if you aren’t bringing much savings with you into retirement.
2. You might have benefits withheld if you earn too much money
Filing for Social Security before FRA will automatically result in a reduced benefit. But if you work at the same time, you may not even get to keep that reduced benefit in full if you earn too much.
This year, you can earn up to $19,560 from a job without having any Social Security income withheld. But beyond that limit, you’ll have $1 in Social Security withheld for every $2 you earn.
Now if you file early and will be reaching FRA later this year, that earnings limit increases substantially to $51,960. And beyond that point, you’ll have $1 in Social Security withheld for every $3 you earn.
Either way, if you’ll be working and earning a substantial amount of money, you may want to think twice about claiming benefits early, since a portion of that income will be withheld. And while you’ll get it back later — specifically, once you reach FRA — the reduction in benefits you face by filing early will remain in effect permanently (unless you manage to undo your claim as per the rules above).
Many people make the decision to sign up for Social Security before FRA. You may determine that that’s the best choice for you. But make sure you’re familiar with these rules before making that call.
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