Americans who qualify can claim their Social Security retirement benefit as early as age 62, but it's important to know the financial implications of doing so. Claiming Social Security early will result in a permanently reduced monthly benefit, so here's a quick guide to help you know how early Social Security could impact you.

What exactly does it mean to claim Social Security early?

You're considered to have claimed Social Security early if you apply for your retirement benefit to start before reaching your full retirement age. This can be as early as age 66 or as late as age 67, depending on the year in which you were born:

If You Were Born In...

Your Full Retirement Age Is...

1954 or earlier

66 years

1955

66 years, 2 months

1956

66 years, 4 months

1957

66 years, 6 months

1958

66 years, 8 months

1959

66 years, 10 months

1960 or later

67 years

Data source: Social Security Administration.

The earliest age at which Social Security retirement benefits can be claimed is 62 years, so "early" Social Security can be defined as starting your benefits at any time between age 62 and the month before you reach full retirement age.

Social Security card in a stack of money.

Image Source: Getty Images.

The reduction for claiming your retirement benefits early

For every month you claim your Social Security retirement benefit before reaching full retirement age, your initial monthly benefit will be permanently reduced, according to these two rules:

  • Your benefit will be reduced by five-ninths of 1% per month (6 2/3% per year) for as many as 36 months before full retirement age.
  • Your benefit will be reduced by five-twelfths of 1% per month (5% per year) for every month you claim early beyond 36 months.

It's also worth noting that your benefit will be permanently increased if you wait until after your full retirement age to start your benefits. Delayed retirement credit will increase your initial benefit by two-thirds of 1% per month, and you can choose to wait until as late as age 70 to start your benefits.

How your Social Security benefit is calculated: The quick version

Your initial Social Security benefit is determined by adjusting all of your lifetime Social Security taxable earnings (which you can find on your annual Social Security statement) for inflation and considering your 35 highest-earning years. These 35 years of earnings are then averaged and divided by 12 to determine your lifetime indexed monthly earnings.

This monthly average is then applied to a formula to determine your primary insurance amount (PIA), which is your initial benefit if you claim at exactly your full retirement age. As of 2017, this formula is:

  • 90% of the first $885.
  • 32% of the amount above $885, up to $5,336.
  • 15% of the amount over $5,336.

The amount calculated from this formula can then be adjusted up or down, depending on when you decide to start your retirement benefit.

What it could mean to you

Let's say your average inflation-adjusted salary throughout your career is $50,000, which translates to a lifetime indexed monthly average of $4,167. Applying this amount to the formula in the previous section gives a PIA of $1,847, when rounded to the nearest dollar. We'll also say you were born in 1960, which gives you a full retirement age of 67. To illustrate how claiming Social Security early could affect you, consider these scenarios:

  • If you choose to claim Social Security as early as possible at age 62, the reduction rules would reduce your PIA by 30%, which would drop your initial monthly benefit to $1,293.
  • If you claim Social Security at 65, which is the age of Medicare eligibility and the second most popular claiming age (62 is most popular), you would be claiming your benefit 24 months early. It would be reduced by 13 1/3%, which would translate to an initial monthly benefit of $1,601.
  • Finally, if you claim Social Security and start benefits in the month of your 67th birthday, your Social Security will not be reduced at all. You'll receive $1,847 per month -- $554 more per month than if you claimed at 62.

The rules are slightly different for spousal benefits

If you expect to receive a spousal benefit -- that is, a Social Security benefit based on your spouse's work record, not your own -- the reduction rules are a bit different.

  • A spousal benefit is reduced by twenty-five thirty-sixths of 1% per month, up to 36 months before full retirement age.
  • It is further reduced by five-twelfths of 1% per month, for every month beyond 36 months before full retirement age.

If you compare this with the rule for standard retirement benefits, you'll see that the only difference is the reduction percentage for up to 36 months early. In addition, it's important to point out that there is no such thing as delayed retirement credit for spousal benefits, so it doesn't pay to wait beyond full retirement age to claim.

It could still be a smart idea to claim early

As a final thought, even though your Social Security benefits will be reduced if you claim yours before reaching full retirement age, there are still many cases where it makes sense to do so. As an example, if you stop working at age 62, it can make sense to claim your Social Security benefit early instead of living off of your other retirement savings.

The bottom line is that the age at which you claim Social Security is a complex one, and the benefit reduction for claiming early is just one piece of the puzzle. It's important to consider all of the pros and cons to decide the best Social Security claiming age for you.

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