The earliest you can begin claiming Social Security benefits is age 62, which is also the most popular age to claim. According to a report from the Center for Retirement Research at Boston College, approximately 48% of women and 42% of men file for benefits at age 62.
Claiming Social Security as early as possible can be a smart move for many retirees, but it's important to make sure you're aware of how it will affect your benefit amount. So before you begin claiming, consider these three factors.
1. You'll receive smaller checks for the rest of your life
One of the most common Social Security misconceptions is regarding the fact that your benefits will be permanently reduced if you claim early. Nearly 70% of baby boomers believe that if they claim early, their benefit amount will increase once they reach their full retirement age (FRA), according to a survey from the Nationwide Retirement Institute.
In reality, if you want to receive the full benefit amount you're entitled to, you must hold off on claiming until your FRA -- which is either age 66 or 67, depending on the year you were born. If you claim before that age, your benefits will be reduced by up to 30% for the rest of your life.
2. Your benefits may be reduced if you continue working
While retirement and Social Security often go hand-in-hand, it is possible to claim benefits and then continue working. However, if you claim early, your benefits could be reduced if your income exceeds certain limits.
If you won't be reaching your FRA in 2021, your annual benefits will be reduced by $1 for every $2 you earn over the limit of $18,960 per year. So, for example, if you claim benefits at age 62 and continue working part-time earning $30,000 per year, your benefits would be reduced by $5,520 per year, or $460 per month.
Depending on how much you're earning, you could potentially have your entire benefit amount withheld. However, once you reach your FRA, you'll start receiving larger checks to make up for the benefit reductions. Although these reductions aren't permanent, it's still important to be aware of how working while claiming benefits will affect the size of your monthly checks, so you're not caught off guard.
3. Your decision is (mostly) final
In general, once you begin claiming benefits, you can't change your mind. You do have one opportunity to reverse your decision after you file, but you must withdraw your application within 12 months of claiming and repay all the benefits you've received so far. That could potentially amount to several thousand dollars, which won't be feasible for everyone.
If you miss the window to withdraw your application, there is another option. Once you reach your FRA, the Social Security Administration can suspend your benefits up until age 70. Then when you begin collecting benefits again, you'll earn larger checks to make up for the time you weren't receiving benefits. Although this option can result in higher monthly payments, your checks will still be smaller than if you had waited until age 70 to claim in the first place.
The age you file for Social Security benefits will have a permanent effect on the amount you receive each month, so it's crucial to make this decision carefully. When you're aware of how claiming early will affect your monthly checks, you can ensure you're making the best decision for your situation.