Social Security Claiming Strategies: Understanding the Drawbacks of Claiming Early
If you qualify for Social Security retirement benefits, you can choose to start receiving your monthly payments as early as age 62. However, if you start collecting Social Security before you reach full retirement age, you'll be penalized.
The reduced benefit is by far the biggest drawback of claiming Social Security early. There are certainly some good reasons for doing so, but it's still important to understand the financial implications of your age when you choose to apply for benefits.
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When do you get your full Social Security retirement benefit?
Full retirement age for Social Security depends on the year you were born, but for most people reading this, it is 67 years old. This full retirement age applies to all American workers born in 1960 or later. Here's what it is for other workers who are at or around Social Security claiming age right now:
|
Birth Year |
Full Retirement Age |
|---|---|
|
1960 or later |
67 |
|
1959 |
66 years, 10 months |
|
1958 |
66 years, 8 months |
|
1957 |
66 years, 6 months |
|
1956 |
66 years, 4 months |
|
1955 |
66 years, 2 months |
|
1954 or earlier |
66 years |
Data source: Social Security Administration.
To be clear, this is the age at which you would get your full, unreduced, Social Security benefit based on your work record. It is not the age of Medicare eligibility (that's 65), or other retirement-related financial issues such as being able to withdraw from retirement accounts.
What happens if you start Social Security early?
You can claim Social Security as early as age 62, but if you start collecting benefits before reaching full retirement age, your monthly payments will be permanently reduced.
The magnitude of the reduction depends on how early you start. And there are two rules.
- For every year you claim early, up to three years, your benefit will be reduced by 6 2/3%.
- For every year beyond three years, your benefit will be reduced by 5%.
So, if your full retirement age is 67, this means that your benefit reduction would look like this at different claiming ages:
|
Age When You Start Social Security |
Total Reduction Percentage |
A $2,000 Benefit Would Become |
|---|---|---|
|
62 |
30% |
$1,400 |
|
63 |
25% |
$1,500 |
|
64 |
20% |
$1,600 |
|
65 |
13.3% |
$1,733 |
|
66 |
6.7% |
$1,867 |
|
67 |
None |
$2,000 |
Data sources: Social Security Administration, author's calculations.
A couple of notes:
- These percentages are prorated month by month. In other words, if you start Social Security at 62 years and 1 month, it would result in a slightly higher benefit than you'd get at 62.
- The reduction percentages are slightly different for spousal benefits.
It's also worth noting that if you wait until after reaching full retirement age, your benefit will be permanently increased at a rate of 8% per year, until as late as age 70. So if your full retirement age is 67, that means your benefit could grow by as much as 24% if you decide to wait.
Is it ever a good idea to start Social Security early?
Even with a reduction for early retirement, there can still be some valid reasons for claiming Social Security early. There are some obvious reasons -- you need the money, for example -- but some aren't so obvious.
For example, did you know that if you collect Social Security retirement and still have a child living at home, the child may also be able to get a benefit based on your work record? If this applies to you, it can certainly be worth starting benefits before full retirement age in some cases.
Your health and family history is another big factor to consider. If you're in relatively poor health when you reach your 60s, it can be to your financial benefit to start Social Security as soon as you can.
The bottom line is that the reduction for early retirement is certainly a factor in when you should claim Social Security, but it isn't the only factor to consider.
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