Social Security can be complex and confusing, and if you're not entirely sure how every aspect of the program works, you're not alone. Only around 40% of adults age 50 and older say they're confident or very confident in their Social Security knowledge, according to a 2023 survey from the Nationwide Retirement Institute, and around 1 in 10 say they're not at all confident.
There's one part of the program that the vast majority of Americans are misunderstanding, however, and it could have an enormous impact on your benefits. If you're making this seemingly innocent mistake, it could potentially result in receiving less than you expect from Social Security.
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How your age affects your benefits
Your full retirement age (FRA) is the age at which you'll receive the full benefit you're entitled to, based on your earnings and work history. You can begin claiming before or after this age, but it will affect how much you receive each month.
File early, and you'll receive a reduced benefit. Delay benefits, and you'll collect a bonus on top of your full amount.
Your FRA has a major effect on your benefit amount, yet only 13% of U.S. adults can correctly name theirs, according to the Nationwide survey. The average guess across all age groups was 60 years old, while baby boomers' most common answer was age 64. In reality, everyone's FRA falls between ages 66 and 67.
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Not knowing your exact FRA may not seem like a big deal, especially if your guess is only off by a year or two. But it could have a serious impact on your monthly benefit.
For example, say that you believe your FRA is 64 years old, when in reality, it's age 67. Let's also say that if you were to file at your FRA, you'd receive $1,800 per month, based on your work history.
If you file at age 64, you may be expecting to receive your full $1,800 per month. However, because you're claiming three years early, your benefits would be permanently reduced by 20% -- leaving you with just $1,440 per month.
Social Security is a major source of income for many retirees, and collecting $360 per month less than expected could make a serious dent in your budget.
At what age should you claim Social Security?
This isn't to say that filing for benefits early is always a bad idea. In some cases, it could actually be your best move and may even help you collect more over a lifetime. But if you're going to claim early, make sure it's an intentional decision.
The primary case against filing early is that it will permanently reduce your benefit by up to 30%. But if you don't necessarily need the extra cash from Social Security, claiming before your FRA could help you retire a little earlier.
Filing early can also be smart if you expect to have a shorter-than-average life span. In theory, you should collect the same amount in total from Social Security regardless of when you file. You'll either receive smaller payments -- but more of them over a lifetime if you claim early or fewer larger checks if you delay.
However, these calculations assume you'll have an average life span. If you have reason to believe you may not live well into your 80s or beyond, you could actually collect more over a lifetime by filing early. Each check will still be smaller, but you may receive more in total than if you'd delayed benefits.
Social Security can be confusing, but it's an integral part of retirement for many older adults. When you know your true FRA and how it will affect your benefits, it will be easier to determine how your claiming decision will affect the rest of your retirement.
