Social Security checks are a vital income source for many older Americans, and seniors are often eager to start them. But while retirees have the option to file for benefits between age 62 and 70, claiming early can reduce the amount of each payment.
Starting benefits “early” means getting your first check any time before full retirement age, which is between 66 and four months and 67 depending on birth year. While many people opt to begin their benefits prior to FRA, it’s important to understand four major consequences of that choice.
1. You could get hit with early filing penalties
For most retirees who claim Social Security before full retirement age, the biggest hit to benefits comes from early filing penalties. These apply on a monthly basis and reduce your standard benefit (the amount available at FRA based on work history). The penalties add up to:
- 5/9 of 1% per month for the first 36 months checks are received before FRA. If you file at 66 when your FRA is 66 and four months, you’d be hit with four penalties adding up to around a 2.22% reduction in your standard benefit. For each full year you file early, benefits shrink by 6.7%.
- 5/12 of 1% for any prior month. This adds up to an additional 5% annual reduction in the standard benefit.
Although the penalties may not sound like much, the cumulative effect can be staggering. If your standard benefit was $1,500 and you filed at 62 with an FRA of 67, you’d face the maximum 30% penalty. Your monthly income would come down to just $1,050.
2. You could shrink your benefits if you don’t work 35 years
Early filing penalties aren’t the only reason claiming Social Security at a younger age could mean getting less money each month.
The standard benefit mentioned above is calculated based on average wages during your 35 highest earning years. So, any senior who puts in fewer than 35 years will end up with a lower benefit because their average wage will be reduced by years of $0 earnings. If you claim Social Security early, there’s an increased chance you won’t have a full 35 year career history and will face this fate.
You can’t assume working 35 years is sufficient to maximize your benefit either. If you’re earning more at the end of your career, staying on the job for extra time enables some years of low wages to be eliminated from your benefits calculation. Forgoing that opportunity could mean smaller benefits.
3. Survivor benefits could end up smaller
It’s not just your own benefits to be concerned about when claiming Social Security early. Your partner may rely on survivor benefits if you pass away first, especially if you were the higher earner.
The surviving partner gets to keep the higher of the two benefits either spouse was receiving. This means if you shrink your checks with an early claim, you’ll leave your widow with less.
4. It’s difficult to undo your early Social Security claim
Finally, it’s important to understand that the choice to claim Social Security early is often irrevocable. So if you regret shrinking your claim, there will be little you can do.
If you’ve claimed early and wish you hadn’t, you can rescind your filing but only within the first year. And you’d have to pay back all the benefits received to date. Many people can’t do that though, so could be stuck with smaller checks for the rest of retirement.
It’s crucial to consider these four downsides of an early claim before filing for benefits before your full retirement age as you don’t want to be left with Social Security checks that are too small to provide the support you need.
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