As Americans begin to think about retirement, one of the most difficult decisions is selecting the right time to submit a claim for Social Security benefits. For those already receiving benefits due to a disability, special rules apply. For everyone else, there are several options prompting many questions, including when benefits are increased and reduced.

Early vs. Full Retirement

For any number of reasons, some retirees choose to begin collecting benefits at age 62, which is considered early retirement age. This may make sense in cases where receiving a benefit is more critical than maximizing income; for example, when managing a health condition. However, be aware that claiming benefits at age 62 versus full retirement age results in a permanent benefit reduction ranging from 20% to 30%.

Determination of Full Retirement Age

Full retirement age (FRA), commonly referred to as normal retirement age, is the age at which there is no reduction in retirement benefits. Starting benefits earlier results in a lower payment, and the effect of a delay past FRA is an increased benefit. FRA varies with the beneficiary’s year of birth. FRA for those born between 1943 and 1954 is 66. If the birth year is 1955, FRA is 66 and two months; 1956, 66 and four months; 1957, 66 and six months; 1958, 66 and eight months; and 1959, 66 and 10 months. The FRA for people born in 1960 or later is 67.

Increased Benefits After Full Retirement Age

For every year you delay collecting retirement benefits past FRA, the amount is increased 8% per year until age 70. The highest possible increase beyond the full retirement benefit is 32%. Given this considerable differential, it is interesting that only 3.7% of applicants delay filing their claim for benefits until age 70, and 34.3% choose to collect at age 62, according to a 2018 USA Today article. It is worth noting that a significant number of FRA claimants are people who had been in the Social Security Disability Insurance program. SSDI recipients are automatically transitioned to the full retirement program when they reach the applicable age.

Choosing When to Collect Retirement Benefits

Some retirees decide to continue in the workforce while receiving benefits. Beginning with the month of FRA, benefits will not be reduced due to employment income. Additionally, the SSA examines annual earnings records and recalculates the benefit if new earnings exceed one of the years used in the original computation. However, if you are younger, the SSA will deduct $1 in benefits for every $2 earned over a designated annual threshold amount. The deduction changes to $1 for every $3 earnings in the year you reach FRA.

The SSA recommends that your decision on the age to start collecting Social Security benefits takes the following into account: Family history of longevity, anticipation of outliving savings, current health condition, health insurance coverage, eligibility for survivor benefits and the potential impact on your surviving spouse. Overall, it is a personal decision to be made between you and your family. It would be a good idea to include your personal financial adviser in the conversation as well.

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