Born After 1954? Here's What You Need to Know About Social Security

Throughout most of Social Security's history, full retirement age was 65. Then, legislation passed in the early 1980s gradually increased the age, which is why it currently sits at 66 for beneficiaries reaching retirement age. If you're born after 1954, your retirement age will be even later than that. Here's what you need to know about your full retirement age, and what it could mean for your Social Security retirement benefits.

What is your Social Security retirement age?

Because of legislation passed in 1983, the full retirement age is set to gradually increase to 67 for future retirees.

Image Source: Getty Images.

Specifically, if you were born after 1954, here's a guide to help you find your full retirement age:

Data source: Social Security Administration.

Permanent reduction for early Social Security benefits and increase for delayed retirement

Here's why knowing your full retirement age is important. You can claim Social Security at any time between age 62 and 70. However, if you choose to claim benefits before your full retirement age, your monthly benefit amount is permanently lowered. On the other hand, if you choose to wait until after your full retirement age, your benefit will be permanently increased.

Depending on how early or late you choose to claim your retirement benefit, your base monthly benefit -- known as your primary insurance amount, or PIA -- will be adjusted by these rules.

• Your PIA is reduced by 6.67% per year (0.56% per month) for claiming Social Security up to 36 months before reaching full retirement age.
• Your PIA is further reduced by 5% per year (0.42% per month) for claiming Social Security early, beyond 36 months.
• Your PIA will be permanently increased by 8% per year (0.67% per month) for claiming Social Security after your full retirement age.

If you're curious, a good estimate of your Social Security benefit can be found on your latest Social Security statement, available by creating an account at www.ssa.gov if you haven't already done so.

How it could affect you

The point is that as the full retirement age increases, Americans can get penalized more for claiming Social Security at a certain age before reaching full retirement age. Conversely, with a higher full retirement age, you'll have to delay Social Security for a longer amount of time to get a benefit increase.

For example, let's say you were born in 1956 and your spouse was born in 1960. That means your full retirement age is 66 years and four months, while your spouse's full retirement age is 67.

So if you both decide to claim Social Security at age 65, so that your benefits will begin at the same time you're eligible for Medicare, you'll be affected differently. You'll only be one year and four months away from your full retirement age, which means your benefit will be reduced by about 8.9%. Your spouse, on the other hand, will be claiming his or her benefit two years early, resulting in a reduction of 13.33%.

In other words, if you both are eligible for $1,500 monthly Social Security benefits at full retirement age, you and your spouse would get benefits of $1,367 and $1,300, respectively, even though you both claimed benefits at the exact same age.

The bottom line is that your full retirement age determines how your claiming age affects your Social Security benefits. Therefore, it's important to know your full retirement age and what it means to your benefits, so you can incorporate it into your retirement planning strategy.