Title: To Retirees Pondering Social Security, Here's a Crucial Tip Before You Collect Benefits
Title: To Retirees Pondering Social Security, Here's a Crucial Tip Before You Collect Benefits
Navigating the world of Social Security can be tricky, especially when it comes to deciding when to claim your benefits. While you might be eager to start receiving payouts after decades of contributing, it's essential to avoid hasty decisions that could lead to financial consequences down the line.
Your claimed age significantly impacts your monthly benefits, and it's permanently set once you've made your choice. For most people today, the government assigns a full retirement age (FRA) of 67, but if you were born between 1943 and 1954, it's 66. You can technically sign up as early as 62, but you'll pay a price for it.
The penalty for claiming early can be severe, reducing your retirement benefit by 5/9 of 1% per month for the first 36 months and 5/12 of 1% per month for any additional months. This means that if you start early with an FRA of 67, you'd lose 25% of your benefits, effectively reducing a $2,000 monthly benefit to $1,400. The odds of regaining this lost amount after you reach your FRA are slim; your benefits won't increase after that mark, with one exception we'll discuss later.
On the upside, if you wait until after your FRA, your checks will grow by 2/3 of 1% per month up until 70. At that point, your benefits max out, so make sure you apply before turning 70 to get the most out of it.
Your claimed age also affects your chance of encountering the earnings test. This is when the Social Security Administration temporarily reduces your monthly checks if you earn above a certain income threshold while claiming benefits before your FRA. For those under their FRA for all of 2025, they'd lose $1 for every $2 earned above $22,320. If, however, you reach your FRA during 2025, the threshold increases to $23,400, and only $1 is withheld for every $3 earned above this new limit.
High earners must be especially mindful of the earnings test. If you earn a significant income and claim benefits before your FRA, the test could result in reduced or even zero checks for you. While the temporary loss will be compensated when you reach your FRA, you'll still end up receiving less than if you had waited until then.
Lastly, your claimed age affects your spouse's survivor benefit. If you claim benefits early or start receiving them after reach your spouse's FRA, your loved one will also see a reduction in their survivor benefits. If you have limited additional resources, this reduction could cause significant financial stress.
Consequently, anyone considering claiming Social Security should thoroughly discuss the impact of their chosen age with their spouse or partner. Explore how your claimed age affects your monthly benefits, earnings test, and survivor benefits, ensuring you embrace the consequences of your decisions beforehand.
Making the decision to claim Social Security benefits early could result in a significant reduction in your monthly income, with a penalty of 5/12 of 1% per month for every month before your full retirement age. This means that if you start collecting benefits at age 62 with a full retirement age of 67, you could lose up to 25% of your benefits, reducing a $2,000 monthly income to $1,400.
Moreover, your claimed age also impacts your spouse's survivor benefits. If you claim Social Security early, your loved one may also see a reduction in their survivor benefits, which could cause financial hardship if you have limited additional resources.