Social Security can be complicated and confusing, but not knowing the ins and outs of the program could potentially hurt your monthly payments.
Considering around 41% of baby boomers are relying on their benefits as their primary income source in retirement, according to a 2023 report from the Transamerica Center for Retirement Studies, even minor misunderstandings could be costly.
While you don't need to know every single detail about how Social Security works, there's one mistake that around half of U.S. adults are making -- and it could potentially hurt your chances at a comfortable retirement.
How your age affects your benefits
The age you begin claiming Social Security will directly impact the amount you receive each month. To receive the full benefit you're entitled to based on your work history, you'll need to wait to file until your full retirement age (FRA), which is between ages 66 and 67, depending on your birth year.
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You can file before or after that age, but it will affect your benefit amount. By claiming before your FRA (as early as age 62), your benefits will be reduced. Wait until after your FRA to file (up to age 70), and you'll receive your full benefit amount plus a bonus each month.
Many people are unaware, however, that these adjustments are permanent. If you file early and receive a reduced benefit, for example, those smaller payments are locked in for life (save for annual cost-of-living adjustments).
If you were in the dark about this rule, you're not alone. Around 49% of U.S. adults mistakenly believe that if they file for Social Security early, their benefit amount will automatically go up once they reach their FRA, according to a 2023 survey from the Nationwide Retirement Institute.
Why this simple misunderstanding is so costly
At first glance, this may seem like a harmless mistake. But if you're heading into your senior years without knowing exactly how your claiming decision will affect your income, you could be hurting your chances at a comfortable retirement.
As of November 2023, the average retired worker collects around $1,800 per month in benefits, according to the Social Security Administration. Say, for example, you have an FRA of 67 years old, and by filing at that age, you'd collect $1,800 per month.
If you were to claim at 62, your benefits would be permanently reduced by 30%. That would leave you with $1,260 per month, which is a whopping $540 per month less than you'd receive at your FRA.
There's nothing necessarily wrong with claiming early. But if you're under the assumption that your checks will increase by hundreds of dollars per month once you reach your FRA, you could be in for a nasty surprise. Also, if you're depending heavily on Social Security as a source of income, receiving less than you expected could potentially put your retirement in jeopardy.
When is the best age to take Social Security?
Again, claiming early isn't always a bad thing. If you have a robust retirement fund and don't necessarily need the extra cash, there may be no harm in filing early. Or if you simply want to retire in your early 60s, claiming early can put that goal within reach. You'll still receive smaller payments, but that may be a worthwhile sacrifice to retire earlier.
On the other hand, if you're looking to maximize your monthly income, waiting a few years is often your best bet. Claiming at your FRA will earn you 100% of your benefit based on your work record, and delaying to age 70 will result in collecting your full benefit amount plus a bonus of at least 24% per month.
Like with claiming early, these benefit boosts by delaying Social Security are also permanent. In other words, if you hold off on filing for benefits, you'll receive larger checks for the rest of your life. If your savings are falling short, that money can go a long way if your retirement fund eventually runs out.
There's not necessarily a right or wrong time to take Social Security, but it is important to know how your decision will affect your benefits. When you know exactly how claiming early will impact your income, you can ensure you're making the best choice for your situation.
