Eligible Americans can file for Social Security when they're as young as 62. But claiming your benefits anytime before your full retirement age (FRA) -- 66 to 67, depending on when you were born -- is considered filing early, and doing so will reduce the size of your monthly checks by as much as 30%, depending on just how early you choose to start receiving them.
While retirees will receive smaller monthly checks if they claim early, that doesn't necessarily mean they'll get less money overall. The formula for calculating the size of those checks was crafted with the goal that the total benefits you receive should come out to be about the same no matter when you start taking them, assuming you live to the average actuarial age you're expected to.
However, retirees still need to understand how filing at different ages affects monthly income so they can make informed choices.
Image source: Getty Images.
What does it mean to file early?
When the Social Security program was created, 65 was the full retirement age for everyone, although workers have always been able to file for their benefits as young as age 62. When Congress reformed the program via the Social Security Amendments of 1983, they instituted a gradual rise in the designated full retirement age -- a reflection of the fact that Americans were living longer.
The chart below shows what the FRA is for today's workers based on the year of their birth. Claiming early is defined as retiring even a month before this age.
| If Your Birth Year Is... | Your Full Retirement Age Is... |
|---|---|
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
Table source: Social Security Administration.
How much does filing early cut benefits?
You'll receive your primary insurance amount (PIA) if you file for Social Security at exactly your FRA, but you will receive less if you start collecting benefits earlier. The size of the reduction to your monthly benefit check is in proportion to how early you file:
- If you file 36 months or fewer before full retirement age, PIA is reduced by 5/9 of 1% per month.
- If you file more than 36 months before FRA, PIA is reduced by 20%, plus an additional 5/12 of 1% per month for each month earlier than 36 months prior to your FRA that you file.
In short, the Social Security Administration reduces the amount of your monthly checks by 6.7% annually for the first three years early that you file and by 5% for each additional year. The chart below shows how much PIA is reduced depending on the age of filing.
|
If You Claim Benefits at Age... |
When Your Full Retirement Age Is... |
The Value of Your Monthly Check Will Be Reduced By... |
|---|---|---|
|
66 |
67 |
6.7% |
|
65 |
66 |
6.7% |
|
65 |
67 |
13.3% |
|
64 |
66 |
13.3% |
|
64 |
67 |
20% |
|
63 |
66 |
20% |
|
63 |
67 |
25% |
|
62 |
66 |
25% |
|
62 |
67 |
30% |
How to calculate the impact of filing early
Since PIA is reduced for each month you claim ahead of schedule, the math will be slightly more complex to calculate precisely what it will cost you if you don't retire exactly one, two, three, or four years early. If you claim 36 months or fewer before FRA, here's the equation that will provide you with the percentage:
- 5/9 times the number of months before FRA
For example, if you're filing 14 months early, multiply 5/9 x 14 = 7.78. That's a 7.78% reduction in your monthly check size.
If you're filing more than 36 months early, account for the additional reduction with this equation:
- 5/12 times the additional number of months before FRA
So, for example, if you're claiming 41 months early:
Start with: 5/9 x 36 = 20 (a 20% reduction).
Add to that the result of: 5/12 x (41 - 36) = 2.08 (a 2.08% reduction)
And you'll find that your monthly check size will be reduced by 22.08% if you claim 41 months early, compared to the amount you'd receive if you waited until your FRA.
How much does this affect your income?
A small cut to the size of your monthly benefit may not seem like that big a deal. However, among U.S. retirees, 48% of married couples and 69% of singles get at least 50% of their household income from Social Security.
Moreover, the program's benefits provide at least 90% of retirement income for 21% of married couples and 44% of unmarried people. These retirees are overreliant on Social Security, which is only intended to replace about 40% of our preretirement income. Most financial experts suggest that in retirement, we will need income equivalent to 70% of what we brought in during our final working years to maintain the same standard of living.
If you're reliant on federal benefits to support yourself and they won't stretch far enough under ideal conditions, even a small reduction in the amount you receive can have a big impact on your lifestyle. And unfortunately, the actual reductions that result from claiming your benefits early aren't that small.
To find out exactly how your checks will be affected, multiply your PIA by your benefits reduction and subtract the result from your PIA.
So, for example, if your PIA at full retirement age is $1,461 -- the average benefit among all retired workers in 2019, according to the Social Security Administration -- and you claim 41 months early:
$1,461 x 22% = $321.42
$1,461 - $321.42 = $1,139.58, the size of your actual monthly check.
The table below offers several scenarios for how much you would reduce your monthly benefits, assuming you were in line to receive an average-size Social Security payout but chose to retire and file before your FRA.
|
If You Claim Benefits at Age... |
When Your Full Retirement Age Is... |
Your Monthly $1,461 Benefit Would Go Down to About... |
And Your Annual SSI Income Would Be Reduced by Around... |
|---|---|---|---|
|
66 |
67 |
$1,363 |
$1,176 |
|
65 |
66 |
$1,363 |
$1,176 |
|
65 |
67 |
$1,267 |
$2,328 |
|
64 |
66 |
$1,267 |
$2,328 |
|
64 |
67 |
$1,169 |
$3,504 |
|
63 |
66 |
$1,169 |
$3,504 |
|
63 |
67 |
$1,096 |
$4,380 |
|
62 |
66 |
$1,096 |
$4,380 |
|
62 |
67 |
$1,023 |
$5,256 |
Based on those figures, you could cost yourself more than $5,000 per year in income by claiming four years early! However, there are a few additional caveats to consider.
The SSA calculates your benefits based on average earnings over the 35 years your wages are highest (after adjusting those figures for inflation). If you're earning significantly more in constant dollars at the end of your career than you were at the beginning -- and that's a fairly common scenario -- then by working longer, you can raise that average by replacing some early years of low income with later years of high income. Since your PIA would then be based on a higher average wage, that could offset some of the household budget shortfalls that might go along with an overreliance on the benefit payment in retirement.
However, to reverse the proposition, that also means that for each year ahead of your FRA that you retire, you are foregoing a year in which you would be increasing the average salary upon which your benefits will be based. So your PIA will be that much smaller, even before the percentage reductions for claiming early are factored in.
Of course, that's only how the math will play out if you're actually earning more in your 60s than you did earlier in your career. If, for example, you've been dialing back on the hours and responsibility (perhaps working part time) and earning less than you once did, working for a few more years might not improve your average salary.
The Social Security program -- as mentioned above -- is also designed so that for the program, it shouldn't matter much when you start taking benefits. If you live to the average age, you'll receive close to the same cash total regardless of when you claim; those early-filing reductions are expected to precisely offset the number of additional payments you'll get by starting them sooner.
But most of us are not average. If your actual lifespan is significantly longer than average, delaying well past your FRA will be a long-term benefit to you in terms of the total Social Security payout you receive. If yours is shorter than the average lifespan, filing earlier would be better.
Are your checks permanently reduced?
The cut in your monthly income is permanent when you claim early; there's no increase to your PIA when you reach FRA. The Social Security Administration also calculates all future cost-of-living adjustments based on your actual benefit amount.
Cost-of-living adjustments (COLAs) are raises retirees get to reflect the fact that inflation raises prices on everything. In particular, the program's COLAs are based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and are awarded as a percentage of your prior benefits. In 2019, retirees received a 2.8% COLA. A worker getting $1,416 per month in 2018 would have gotten a 2.8% raise of $39.65 to $1,455.65 per month. If that retiree's benefit had been reduced to $1,023 due to claiming early, their COLA would have been worth just $28.64 and raised their monthly benefit to just $1,051.64.
Does filing early ever make sense?
Many experts advise seniors to wait to claim their benefits and thus avoid the reductions that come from filing early. Retirees can also increase their benefits above their PIA by earning delayed retirement credits, which you can accrue up to age 70.
However, each year you delay represents a year of foregone income you'll need to make up for in order to break even. To calculate your break-even point:
- Determine what your monthly check would've been at 62.
- Calculate the amount of income you'll miss by not claiming early. That's your monthly benefit at age 62 times the number of months of missed payments. If you claim at 63, multiply by 12; if you claim at 67, multiply by 60.
- Determine your monthly benefit at the later age. If you're comparing claiming at 63, this would be your benefit at 63.
- Calculate additional monthly income you would receive due to delaying by subtracting the lower monthly benefit received at 62 from the higher monthly benefit received later.
- Divide the value of the total income missed by the higher monthly benefit received later to see the number of months you will have to receive payments in order to break even.
Here's an example: Let's say your monthly benefit for claiming at 67 would've been $1,461, and you want to determine the break-even point for waiting until 67 instead of claiming early at 62.
- Your monthly benefit at 62 would be about $1,023 (a 30% reduction from $1,461).
- You miss 60 months of payouts. Multiplying $1,023 times 60 months shows that you forego $61,380 in income by waiting five years to start taking Social Security.
- The monthly benefit you get if you delay to 67 is $1,461.
- Subtracting $1,023 from $1,461 gives you $428 -- the difference in monthly benefits that comes from delaying.
- Dividing $61,380 by $438 gives you 140.14. That's the number of months you'd need to earn your higher benefit to break even on the total value you're gaining from this entitlement program. That's 11 years and eight months. You'd be just shy of 79.
So if you don't think you're likely to live to 79, you are -- at least from the perspective of getting the most overall value from this program -- better off claiming your benefits earlier.
You may also decide you prefer to file for benefits early because you'd rather have more money to enjoy retirement while you're still young or because you cannot find a job, or health issues prevent you from working and you need income to survive.
What can you do if you filed early and you regret it?
If you filed early and regret it, you may have options. They are:
- Withdraw your claim: If you filed less than 12 months ago, you can submit a written request to withdraw your claim to the Social Security Administration. Your benefits payouts will stop (until you refile later), and it will be as though you never claimed early in the first place. However, you will need to pay back any benefits you already received.
- Suspend benefits: If you've reached your full retirement age and decide to delay claiming benefits to earn delayed retirement credits until 70, you can suspend your benefits and resume them later when you'll receive larger monthly checks.
- Work to reduce benefits: If you work while receiving Social Security in the years prior to your FRA, the government reduces your benefits by $2 for each $1 earned above a set income limit, which is $17,640 in 2019. If you're working in the year you'll hit your FRA, the SSA reduces your benefits by $1 for each $3 earned above a higher income limit, which is $46,920 in 2019. You'll get credit and receive a higher benefit later if you reduce your income by working.
There are downsides to each of these options, so it's better to simply not claim until you've done the math, weighed the pros and cons of different retirement ages, and figured out precisely how your benefits will be affected under each scenario.
Now you understand how filing early affects your Social Security benefits
Now you know how much filing early cuts your Social Security. You can consider the benefits and downsides and make the most informed choice about the age at which you should claim your retirement benefits.
