55% of Americans Are Wrong About the Most Basic Social Security Fact and It Will Cost Them

Social Security benefits are a crucial support source for many seniors, typically supplementing retirement savings or even providing the bulk of a retiree's income. Unfortunately, many people are confused about how Social Security benefits work, and their misunderstandings could cost them.

In particular, a recent survey from the financial services company Allianz Life demonstrates that over half of all Americans are wrong about a key Social Security fact that could affect both their monthly and lifetime benefits. The mistake that so many Americans are making relates to one of the most fundamental issues affecting benefits. Here's what it is.

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Far too many Americans don't know this basic Social Security fact

According to the Allianz Life survey, 55% of Americans believe that the full retirement age (FRA) for collecting Social Security is 65.

If you're confused about exactly what this means or why it's a problem, chances are that you may be one of those Americans. Sadly, everyone who believes this inaccuracy could miss out on being able to make the right choices when it comes to filing for benefits.

FRA is the age when you can claim your standard Social Security benefit. Officially known as your primary insurance amount (PIA), your standard benefit is based on an average of inflation-adjusted wages in your 35 highest earning years. But you must claim at the right time to get your exact standard benefit. And 65 is not the right time.

While 65 used to be full retirement age for everyone to claim Social Security, that hasn't been the case for a long time. The problem is, if you don't know when your actual FRA is, or how your claiming age relative to it affects your benefits, you could end up making the wrong decisions during the retirement planning process.

Why do you need to know your correct FRA?

It's really important that you know when your actual FRA is because if you claim benefits before it, you shrink your monthly amount. And if each check you get from Social Security ends up being smaller, you'll have to pull more money out of your retirement plans to enjoy the same standard of living as if you had claimed at the correct age.

Not only will an early claim cut benefits, but it can also impact your ability to work while getting benefits. Working before your FRA can result in a temporary loss of some Social Security income once your wages go above a certain threshold.

And you could reduce your best chance at maximizing lifetime earnings through the program, as studies have shown a delayed claim until age 70 is best for around seven in 10 retirees. Since life expectancies have gotten longer in the years since Social Security was created, more people now exceed their projected lifespan and are better off delaying their claim to get higher benefits, and for longer.

If you're one of the 55% of Americans who believe your FRA is 65, you could face that loss of lifetime and monthly income. That milestone is not 65 for anyone who was born after 1937. Unless you are in your late 80s or older, you have a later FRA.

The specifics depend on when you were born:

• 1937 and earlier: 65 years old
• 1938: 65 years and 2 months
• 1939: 65 years and 4 months
• 1940: 65 years and 6 months
• 1941: 65 years and 8 months
• 1942: 65 years and 10 months
• 1943–1954: 66 years old
• 1955: 66 years and 2 months
• 1956: 66 years and 4 months
• 1957: 66 years and 6 months
• 1958: 66 years and 8 months
• 1959: 66 years and 10 months
• 1960 and later: 67 years old

If you know your true FRA, you can make an informed decision about whether to claim benefits early and shrink them by as much as 30% (if you claim at 62 and your FRA is 67) or if you want to delay claiming as long as possible -- potentially even to 70 to get delayed retirement credits that increase your benefit later in life. This can help you make your 401(k) stretch further, since you won't have to rely on it as much for your income, thanks to your bigger Social Security checks.

Now you know what your actual FRA is. You can decide exactly what's right for you and avoid the mistake that over half your fellow Americans are making by basing their claiming choice on the wrong info. Your retirement should be better because of it.

Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.