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Not Knowing These Things About Social Security Could Shrink Your Benefits for Life

By Maurie Backman - Sep 29, 2019 at 8:49AM

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Consider yourself warned.

Millions of seniors today collect Social Security, and once you retire, you're apt to appreciate having that income stream. But if you don't educate yourself on how the program works, you could wind up reducing your benefits and potentially struggling financially as a result. Here are a few important points about Social Security you must be aware of.

1. The way your benefits are calculated

You might assume that everyone gets the same amount of money from Social Security during retirement. Not so. Your benefits are calculated by taking your wages during your 35 highest-paid years on the job and adjusting them for inflation. Therefore, the more you earn, the higher your benefits stand to be.

Man with a serious expression looking at computer screen.


Furthermore, if you don't have a full 35 years of income under your belt (say, you took time off to be a stay-at-home parent), you should know that you'll have $0 factored into your benefits equation for each year you're without an income. And that, in turn, could hurt you during retirement.

All of this underscores the importance of understanding what goes into your benefits calculation. If you have a large gap in your work history, you can help compensate for it by extending your career. For each extra year you work, you'll replace a $0 with an income that can help boost your benefits. Fighting for raises throughout your career or boosting your skills so you're eligible for more money can also help you score a higher payout from Social Security.

2. Your full retirement age

Though your Social Security benefits are calculated based on your earnings history, you're not able to collect them in full until you reach your full retirement age, or FRA. Your FRA depends on the year you were born, as follows:

Year of Birth

Full Retirement Age




66 and 2 months


66 and 4 months


66 and 6 months


66 and 8 months


66 and 10 months

1960 or later



You're allowed to file for benefits as early as age 62, but for each month you claim them ahead of FRA, you'll reduce them by a certain percentage. In a most extreme scenario, which would mean filing for Social Security at 62 with an FRA of 67, you'd be looking at a 30% reduction. That's why you must commit your FRA to memory -- so that you don't file too early and regret it after the fact.

Incidentally, you're also allowed to delay benefits past FRA. For each year you do, you'll boost them by 8%, up until you turn 70, and that increase will remain in effect on a permanent basis.

3. You're allowed a do-over 

Some people file for Social Security ahead of FRA because they need the money or have another pressing reason not to wait. But while doing so could reduce your benefits for life, it actually doesn't have to.

The Social Security Administration allows you one do-over, so to speak, in your lifetime, so that if you wind up filing for benefits early and regretting it later, you can withdraw your application within a year, pay back all of the money you received from Social Security, and file again at a later point in time. If that later point in time is at FRA or beyond, you'll avoid a reduction in benefits.

If there's one thing you should take away from the above points, it's this: Social Security is a complex program with lots of rules, but the more you educate yourself on them, the better equipped you'll be to get the most money out of the program.

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