Social Security benefits can be complicated and confusing, but it’s important to have at least a general understanding of how they work. Because your monthly checks can make up a significant portion of your income in retirement, even small mistakes could be costly.
While you don’t need to know everything about Social Security, there’s one mistake the majority of older adults are making — and it could have an enormous impact on your retirement.
Do you know your full retirement age?
Your full retirement age (FRA) is an integral part of your Social Security strategy. This is the age at which you become eligible for your full benefit amount, or the amount you’re entitled to based on your work history.
If you can’t name your FRA off the top of your head, you’re not alone. In fact, only 16% of Americans correctly guessed their FRA in a 2021 survey by the Nationwide Retirement Institute.
According to the survey, most people believe their FRA is younger than it really is. The average guess among all participants was 61 years old, when in reality, 62 is the earliest you can file for Social Security. Everyone’s FRA falls somewhere between ages 66 and 67, with the exact age depending on the year in which you were born.
Why your FRA is crucial to your retirement
While not knowing your FRA may not seem too problematic, it could spell trouble for your retirement. The age at which you file for Social Security has a direct impact on the amount you receive each month.
If you begin claiming before you reach your FRA, your benefits will be reduced. If you wait until after your FRA to file, you’ll receive a bonus on top of your full benefit amount.
When you know your exact FRA, you can more accurately plan your retirement. But if you incorrectly guess your FRA, you could end up receiving less than you expect.
For example, say your real FRA is age 67, but you believe it’s age 64. If you claim at 64, you could be expecting to receive your full benefit amount, when in reality, you’ll collect a reduced payment because you’re actually claiming early.
On the other hand, say that you believe your FRA is 64 but you plan to claim at 67. In this case, you might be expecting a higher benefit amount by delaying benefits. However, you’ll actually only receive your full benefit amount, not a bonus.
When is the right time to claim?
If you were born in 1960 or later, your FRA is 67 years old. Anyone born before 1960 has an FRA of either 66 or 66 and a certain number of months, depending on your exact birth year.
Age 62 is the earliest you can begin claiming, but your benefits will be reduced by up to 30%. If you wait until age 70, you can receive your full benefit amount plus up to 32% extra. In general, your benefit amount is locked in for life once you begin claiming. It pays, then, to make sure you’re filing at the right age for you.
There’s not necessarily a right or wrong answer as to when you should file. It depends largely on how much you have in personal savings and at what age you want to begin retirement. You don’t necessarily have to file for benefits and retire at the same time, but they often go hand in hand.
Social Security can be tricky, but knowing the basics can make it easier to plan your future. When you know your FRA, you can ensure you’re heading into retirement as prepared as possible.
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