Many people spend years looking forward to turning 62. That's because 62 is the first age at which most workers can claim retirement benefits from Social Security, and a large fraction of older Americans choose to start getting monthly checks from Social Security as soon as possible.
If you're going to be eligible for Social Security for the first time in 2020, however, there's something you need to know. Under laws that took effect more than 35 years ago, the benefits that you'll receive will be less than what people in a similar position in 2019 received. That's because lawmakers back then dealt with potential financial difficulties for the program by instituting new rules that effectively reduced how much those hitting early retirement age will get from Social Security.
What lawmakers did to take away benefits now
Social Security has always been a dangerous issue to discuss in Washington, and lawmakers in the early 1980s knew that they were entering a potential minefield. Yet they also needed to ensure the long-term financial security of the program. As part of a compromise, Congress agreed to raise the full retirement age, which at the time was 65.
However, the provisions didn't take effect immediately. The intent of waiting was to ensure that those who were close to retirement wouldn't get punished by the law changes at a time at which it was too late for them to do anything about it.
Instead, increases to the full retirement age got implemented on a delayed basis. It went rose from 65 in two-month increments for those born between 1938 and 1942, and stayed at 66 for those born between 1943 and 1954. More recently, another set of two-month incremental increases began a few years ago for those born in 1955. Those increases will continue until those born in 1960 and later have a full retirement age of 67.
What that means for those turning 62 in 2020 is that their full retirement age will be 66 and eight months. That's up two months from the full retirement age of 66 and six months for those who turned 62 in 2019.
Just how much money are new Social Security recipients losing?
The consequences of full retirement age rising by two months aren't immense, which is why it's fair to characterize the move as a stealth Social Security cut. Over time, though, the slight reductions will add up.
As an example, say that you're turning 62 in 2020 and were an above-average earner throughout your career, therefore qualifying for a full retirement monthly benefit of $1,800 from Social Security. Because your full retirement age is 66 and eight months, retiring at 62 means that you're getting your benefits 56 months early. That will result in your getting a Social Security check each month equal to 71 2/3% of your full retirement amount, or $1,290.
However, someone who turned 62 in 2019 and had the same earnings history and full retirement age benefit would receive slightly more. Because the full retirement age applying here was 66 and six months, claiming at 62 is just 54 months early. The 2019 retiree got 72 1/2% of their full retirement monthly benefit, or $1,305. That's $15 per month higher.
You can't just wait it out
If you think you can avoid the problem by holding off longer before claiming your Social Security benefits, think again. The change in full retirement age affects your benefits no matter when you claim.
For example, say you wait until age 70 to claim. You'll get 40 months' worth of delayed retirement credits, which will boost your check by 26 2/3%. The monthly check will be $2,280. However, for the person who turned 62 in 2019 instead of 2020, the increase would be slightly greater, with 42 months adding up to a 28% boost. That makes the corresponding monthly check $2,304 -- $24 higher every month.
Cuts will continue
Those turning 62 in 2021 and 2022 will also have to deal with this Social Security cut, until the full retirement age finally maxes out at 67. However, some policy makers believe that further increases to Social Security's retirement age could be forthcoming. Staying aware of them is critical to make sure that you don't get any nasty Social Security surprises.