If you are turning 66 this year, you might be excited about getting to claim Social Security benefits soon if you haven't already done so. Unfortunately, you've actually been subject to a benefits cut that you may not be aware of.
This cut wasn't passed by lawmakers in recent years. Instead, it dates back to Social Security amendments passed in the 1980s. It's important to know and understand how the rule changes affect you, though, so you can make informed choices as you decide what to do about your Social Security benefits.
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Here's why you got a de-facto benefits cut if you're turning 66 this year
The reason that anyone turning 66 this year will end up with a Social Security benefits cut is a simple one.
In 1983, a law designed to shore up Social Security's finances began gradually moving full retirement age later. Full retirement age, or FRA, is the age when you are entitled to claim the standard benefit calculated based on average wages throughout your career. It used to be age 65 for everyone, but the 1983 amendments changed it for anyone born in 1943 or after.
The change to FRA was phased in, with those born in 1943 to 1954 able to claim their standard benefit starting at age 66. Then, anyone born in 1955 or later would see FRA move later by two months until all those born in 1960 or after would have a full retirement age of 67.
That means if you turn 66 this year, your full retirement age is later than everyone who turned 66 before you. You'll now need to wait until you are 66 years and 8 months old to get your first Social Security check if you don't want your benefits to be reduced by early filing penalties, while your peers who turned 66 last year only had to wait until age 66 and 6 months.
This benefits cut can cost you over time
It may not seem like a big deal to have to wait an extra few months to get your first Social Security benefit. But, if you have to pass up two months of income, that's a few thousand dollars you won't have.
And if you claim earlier than 66 and 8 months, you'll face early filing penalties that reduce your benefits by 5/9 of 1% for every one of the first 36 months you claim benefits prior to FRA (plus an additional 5/12 of 1% per month if you claim more than 36 months early). This reduction can add up over your lifetime.
Ultimately, the reality is that the change to full retirement age ends up meaning you get less lifetime benefits. There's nothing you can do about it except decide if waiting the extra two months to claim benefits is the right move. But you should be aware of it as you make your retirement plans and consider what Social Security will do for you in providing you with support during your later years.
