Social Security is an important income source for millions of seniors today. In fact, for some seniors, it's their only source of income. That's why it's so important to understand exactly how the program works, especially when it comes to filing for benefits.

But a new survey by Nationwide reveals that Americans are grossly misinformed about the impact of claiming benefits early, and if they don't get their facts straight, they stand to lose out on a lot of money in retirement.

How claiming benefits early works

Your Social Security benefits are calculated based on your specific wage history. From there, you're entitled to your full monthly benefit once you reach full retirement age, or FRA.

Older man holding paper while scratching head

Image source: Getty Images.

FRA is not universal; it's based 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


Data source: Social Security Administration.

You're allowed to sign up for Social Security beginning at age 62, but for each month you claim your benefits before FRA, they are reduced. As an example, if you're entitled to $1,500 a month at an FRA of 67 but you sign up for benefits at 65 instead, you'll lose 13.34% of that total, bringing your new monthly benefit down to $1,300.

And here's the kicker: That reduction in benefits is permanent. And that's something many people aren't aware of.

In the aforementioned survey, only 45% of millennials, 49% of Gen Xers, and 69% of baby boomers were aware that claiming benefits early locks in that lower payment for life. Everyone else thought that claiming benefits early merely meant getting less money until FRA, at which point a full benefit would kick in.

When we dig deeper, that line of thinking clearly doesn't make sense. If Social Security benefits that are claimed early are restored to their full amount at FRA, why wouldn't everybody just sign up for them as early as possible? Nonetheless, it's easy to see why some people would be confused about that rule, and if you're one of them, consider this a very important point of clarification.

Are there exceptions to the rule?

If you file for Social Security before FRA, the monthly benefit you lock in is what you'll continue getting for life. The only exception is if you withdraw your benefit application within a year and repay the Social Security Administration all the money it paid you in benefits. If so, you'll get a do-over that allows you to claim Social Security later on in life, thereby securing a higher monthly benefit. But if you don't take those steps, the monthly benefit you start off with will be the one you get throughout retirement.

Your benefits may go up slightly from year to year thanks to Social Security's cost-of-living adjustments. But at that point, you're talking minor raises; a $1,300 monthly benefit isn't going up to $1,500. Therefore, if you're going to claim benefits early, make sure you understand exactly what you're really signing up for: less monthly income for life.