If you claim Social Security early, you will get a smaller monthly check than if you'd waited. This could not only reduce the amount you have to live on, but it could also reduce the benefits you get over the course of your entire life.
But how much smaller could your income be during retirement by claiming Social Security benefits early? Here's what you need to know.
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This is how early filing affects your monthly benefit
Your standard Social Security benefit is based on a percentage of your average wages. This benefit is available to you if you claim Social Security at a designated full retirement age (FRA). Your FRA depends on your birth year, and is between 66 and 6 months and 67 for everyone who was born in 1957 or later.
For each of the first 36 months you get a benefit check before your FRA, your standard Social Security benefit is reduced by 5/9 of 1%. And for any month before that if you claim more than 36 months early, your check is reduced by an additional 5/12 of 1%. These reductions add up to a 6.7% annual benefits cut for each of the first three years, and another 5% annual reduction if you've claimed more than three years ahead of FRA.
This benefits reduction can be huge. If your FRA is 67 and you've chosen to get your first Social Security check at age 62, your monthly checks will be 30% smaller than if you had waited until your FRA. You will also miss out on the chance at earning delayed retirement credits equal to 2/3 of 1% per month. These can be earned between your FRA and age 70 if you delay your first payment, and these credits can increase your checks by up to 24% in total over the three years of delay if your FRA is 67.
To really understand that, consider what would happen to a standard benefit of $1,600. If you claimed at 62 instead of waiting until a full retirement age of 67, the $1,600 monthly payment you could have received would be reduced to just $1,120 per month. If you'd waited until 70, though, that $1,600 would have turned into $1,984 -- a full $864 more per month than the $1,120 you'd get if you made the earliest possible claim.
Shrinking your monthly Social Security check by so much can have a profound impact late in retirement -- and, depending on your lifespan, it could also mean you get less benefits over the course of your life. If you lived until 85, for example, you'd have received $309,120 in Social Security checks if you claimed at 62 (not accounting for cost of living adjustments), compared to $357,120 if you'd put off your claim until 70. COLA's aren't factored into this math, but since they're calculated based on a percentage of the benefits you earn, they don't change the math -- or the fact that you'd pass up tens of thousands of dollars of annual income due to your early claim.
Now, there's a chance you could end up passing away before you break even for the forgone benefits if you delay your claim for your first Social Security benefit. But for many seniors that doesn't happen. You may not want to bet on an early death when doing so could leave you with a lot less Social Security during your later years when you may need the money the most.
