Social Security can go a long way in retirement, and for some older adults, benefits are their source of income later in life.
However, there are many misunderstandings about how the program works and how benefits are calculated. Sometimes even minor misconceptions can be incredibly costly, and there's one aspect of Social Security that the vast majority of adults are getting wrong: full retirement age.
The good news is that one simple chart can make it easier to understand your full retirement age and the impact it has on your benefits. Here's everything you need to know.
Image source: Getty Images.
What is your full retirement age?
Your full retirement age (FRA) is the age at which you'll receive the full benefit you're entitled to based on your career earnings. If you begin claiming benefits before or after this age, it will affect how much you'll collect each month.
Not everyone has the same FRA, as it will depend on your birth year. If you're unsure of your FRA, you're not alone -- only 13% of U.S. adults can correctly name theirs, according to a 2023 survey from the Nationwide Retirement Institute.
If you were born in 1960 or later, your FRA is 67 years old. Those born before 1960 will have an FRA of either 66 or 66 and a certain number of months, depending on your exact birth year.
Data source: The Motley Fool.
Most adults believe their FRA is younger than it really is, according to the Nationwide survey. The average baby boomer guessed their FRA is 64 years old, and the average guess among all age groups was 60 -- even though the earliest you can file for Social Security is age 62.
If you don't know your correct FRA, you could be in for a surprise when you begin claiming. For instance, say your real FRA is 67 years old, but you mistakenly believe it's age 64. If you file at 64, you may expect to receive your full benefit amount. But because you're actually claiming three years early, your benefit will be permanently reduced by 20% per month.
What age should you take Social Security?
Knowing your correct FRA is the first step to deciding what age you want to file for Social Security. Again, filing at your FRA will result in collecting your full benefit amount based on your work history.
If you file as early as possible at age 62, your benefit will be reduced by up to 30%. But if you delay claiming past your FRA (up to age 70), you'll receive your full benefit amount, plus a bonus of at least 24% per month.
Delaying benefits is often the best move if you're looking to maximize your income. In fact, a 2019 study from United Income found that 57% of retirees could collect more money over a lifetime by waiting until age 70 to file. In addition, the average retired household misses out on around $111,000 worth of lifetime income by filing at the suboptimal age, researchers discovered.
That said, claiming early also has its merits. If your primary goal is to retire early and you're OK with collecting smaller checks each month, taking Social Security at 62 can be a smart choice. You don't necessarily have to file for benefits as soon as you retire, but it can make early retirement more affordable than if you were to try to survive on your savings alone.
Social Security can be confusing, but if it's going to be a significant source of income in retirement, it pays to at least understand the basics of how the program works. When you know your FRA, it will be easier to decide what claiming age is the best fit for your retirement goals.
