Social Security provides income to 90% of retirees in America, yet many don't know exactly how this program works . Confusion is definitely understandable, as a quick search of "how do Social Security benefits work?" turns up more than 72 million results.

While figuring out Social Security claiming strategies can be complicated, there's one really important mistake almost 4 in 10 preretirees are making that could end up costing a fortune. That mistake: Not understanding the impact retiring before full retirement age has on benefits. How are so many getting this question so wrong?

Social security cards on top of money

Image source: Getty Images.

Retirees don't understand this key fact about Social Security benefits

According to a 2017 Fidelity Social Security survey, 39% of Social Security beneficiaries believe it's possible to retire early, claim a reduced Social Security benefit, and have benefits increase automatically once they reach full retirement age (FRA). This is simply not true.

It's true you can claim benefits before FRA. You can claim benefits as early as 62, although benefits are reduced if you claim early. But this reduction in benefits is permanent.

Your reduction in benefits will last for life -- and all future cost-of-living adjustments will be based on your lower benefit amount -- unless you take steps to undo your early claim.

How much are your benefits reduced?

The reduction in benefits can be significant if you claim benefits early, while delaying past FRA allows you to increase your benefits up until age 70.

Benefits are reduced by 5/9 of 1% for each month you claim benefits before FRA. If you claim benefits more than 36 months early, benefits are reduced by an additional 5/12 of one percent.  If you delay past FRA, benefits are increased by 2/3 of 1% for each month. 

This chart shows how the reduction or increase would affect you if your benefits at FRA would be $1,404, the average monthly benefit for retirees collecting Social Security in 2018. 


Change in Benefits Compared to FRA

Monthly Benefits

Annual Difference in Benefits vs. FRA


30% reduction




25% reduction




20% reduction




13.3% reduction




6.7% reduction




No change




8% increase




16% increase




24% increase



Data source: Social Security Administration. 

By claiming early, you do get extra years of benefits, so this needs to be considered when deciding when to claim benefits. There's a simple calculation to determine how much time it will take to break even for delaying benefits: multiply the lower annual benefit by the extra years of benefits and divide this number by the difference between the higher and lower benefits.

If you think you'll live longer than the time it takes to break even, delaying makes sense -- but if you don't, you may want to claim early. There may also be other reasons to claim benefits early, such as making it possible for your spouse to claim benefits on your work record.

The important thing is to make the decision intentionally, with the knowledge that the reduction in benefits caused by claiming before FRA is a permanent reduction. 

Is there anything you can do to undo the reduction caused by claiming early?

Whether you claimed benefits early under the mistaken belief they'd increase at FRA or you simply changed your mind after claiming early, you may have options to undo this and wait to claim until you can get your full benefits. Your options include:

  • Withdrawing your application for Social Security benefits: This is an option only if its been less than 12 months since the date you were first entitled to benefits. To withdraw your claim, you must make a written request and must repay all of the benefits received to date.  
  • Working while receiving benefits: If you claim benefits before full retirement age and work while you receive Social Security benefits, benefits will be reduced by $1 for each $2 you earn above $17,040. The amount withheld because of your earnings will be credited back to you so your benefits increase at full retirement age. 

Understanding Social Security is key before claiming benefits

After weighing your options, you may very well decide claiming benefits early is worth it despite the decrease in benefits. However, you want to make this choice with all the facts, not operating under a mistaken belief that your benefits will go up once you get older. 

Unfortunately, confusion over claiming early is just one of the many misunderstandings people have about how Social Security benefits work. Before you claim benefits, make sure you understand the basics and can answer these key questions so you'll be confident you're making the best choice for your financial situation.