Social Security can be confusing at times, but it's an integral source of income for millions of retirees. The average retired worker collects over $1,800 per month in benefits, as of August 2023, which can go a long way.
However, even small misunderstandings about how the program works can be dangerous. While you don't need to know every single detail about Social Security, there's one fundamental fact that 87% of U.S. adults are getting wrong -- and it could cost you more than you might think.
Image source: Getty Images.
Your full retirement age (FRA) is one of the most important Social Security figures you need to know, but if you're unsure of yours, you're not alone. Only 13% of U.S. adults could correctly name their FRA, according to a 2023 survey from the Nationwide Retirement Institute. Even more concerning, however, is that many believe it's lower than it actually is.
Why is your FRA important?
Your FRA is the age at which you'll receive the full benefit amount you're entitled to, based on your career earnings. It differs by birth year, but it's age 67 for anyone born in 1960 or later.
You don't have to wait until your FRA to file for Social Security, but if you begin claiming before or after that age, it will affect your benefit amount. File as early as possible at age 62 and your benefits will be reduced by up to 30%. Wait until age 70, and you'll collect your full benefit amount plus a bonus of at least 24% per month.
In the Nationwide survey, the average baby boomer guessed their FRA was age 64, while Gen X participants guessed age 60. Millennials and Gen Z believed their FRA was age 55 and 54, respectively.
Image source: The Motley Fool.
Not knowing your correct FRA may seem like a harmless misunderstanding. But if you believe it's several years younger than it really is, you could end up receiving less than you expect once you begin claiming.
For example, maybe you believe your FRA is 64 years old when in reality it's age 67. If you file at 64, then, you may be expecting to receive your full benefit amount. But because you're actually claiming three years early, your benefit will be reduced by 20%.
It's also important to keep in mind that these benefit adjustments are permanent. In other words, if you file early, you won't start receiving larger checks once you reach your FRA -- those smaller payments will be locked in for life.
At what age should you begin claiming?
Age 66 or 67 is a long time to wait to begin claiming, which is probably why most older adults file early. Age 62 is the most common age to file. Roughly 35% of men and nearly 40% of women claim at this age, according to a report from the Bipartisan Policy Center.
However, a 2019 study from United Income found that 57% of retirees could have increased their lifetime income by waiting until age 70 to take Social Security. Furthermore, the average household will miss out on around $111,000 in potential income over a lifetime by claiming at the sub-optimal age, researchers found.
So which age is actually the best to take Social Security? It depends on your situation. If you're looking to maximize your monthly income, waiting until age 70 is likely your best bet. You could receive hundreds of dollars more per month by delaying benefits, which adds up substantially over time.
On the other hand, if your main priority is to retire earlier in life (even if it means sacrificing some monthly income), claiming early could be a smart decision. You don't have to retire and take Social Security at the same time, but filing early often makes early retirement more affordable.
The age at which you begin taking benefits is highly personal, but knowing your FRA is the first step to making that decision. When you know how your age will affect your benefit amount, you can ensure you're making the best choice for your situation.
