The age at which you file for Social Security could impact how much money you collect from the program on an ongoing basis in retirement. Though your benefits themselves are calculated based on your highest-paid 35 years on the job, you're only entitled to your full monthly benefit once you reach full retirement age, or FRA. That age is 66, 67, or somewhere in between, depending on your year of birth.
That said, you actually get an eight-year window to sign up for benefits that kicks off at age 62 and ends at age 70. Filing after FRA will boost your benefits for life, but filing early will have the opposite effect -- you'll face a reduction in benefits. Of course, the upside of filing early is that you'll get your money sooner, which is why many seniors ultimately go this route. But before you make the decision to file for benefits ahead of FRA, consider the following ramifications.
1. You could cut your benefits by up to 30%
Your Social Security benefits are reduced for each month you file ahead of FRA, but if you're planning to file early, your worst-case scenario is a 30% reduction all-in. This would come into play if your FRA is 67 and you file at the earliest possible age of 62. If you're eager to get your money before FRA but are afraid to take such a tremendous hit on your benefits, you can always compromise and file somewhere in the middle of that window. For example, if you were to file at 65 with an FRA of 67, you'd lose just 13.3% of your benefits rather than slash them by 30%.
2. You could have benefits withheld if you're still working
The Social Security Administration (SSA) will allow you to work and collect benefits at the same time. Once you reach FRA, you can earn as much as you'd like and still receive your monthly benefits in full. But if you're planning to file before FRA and continue working, you could see some of your benefits withheld if your earnings exceed a certain limit. That limit changes from year to year, but for 2019, it's $17,640. From there, you'll have $1 in benefits withheld per $2 of earnings. If you're reaching FRA this year, you can earn up to $46,920 without impacting your benefits. After that, you'll lose $1 in Social Security for every $3 in income.
Now the good news is that the money you have withheld won't be lost permanently; it'll be added back into your benefits once you reach FRA. But the reduction in benefits you'll face by filing early will remain in effect, even once FRA kicks in.
3. You can undo your benefit claim -- if you act quickly enough
Many people claim Social Security early, only to be sorry for it afterward. If you decide to file early because you have a pressing need for money, but that situation resolves itself shortly after the fact, there is the option to undo your application and start over with a new filing at a later point in time. To do so, however, you must withdraw your application within a year and also repay the SSA every dollar in benefits you collected. For many seniors, meeting that second requirement is easier said than done, but if you're thinking of filing early, you should know that undoing your benefits is at least on the table.
Though claiming Social Security early isn't always a bad idea, there are consequences involved that you'll need to consider. Keep these points in mind when making your decision so you don't regret it after the fact.