Please ensure Javascript is enabled for purposes of website accessibility

This Social Security Misconception Could Leave You Cash-Strapped in Retirement

By Maurie Backman – Aug 29, 2020 at 8:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Before you sign up for Social Security, be sure to get your facts straight.

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.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.