When you’re nearing retirement, you need to make a choice about your Social Security benefits. You must make the decision on when to apply and start receiving monthly checks.
You have the option of receiving your benefit from the age of 62. But this is considered “claiming early,” because you’ll be filing checks well before you reach full retirement age (FRA). That is between 66 and four months and 67 years, when you receive your standard benefit as calculated on the basis of the average salary over your career.
Early filing can make sense in some situations – but unfortunately, many people apply for benefits too quickly for the wrong reasons and end up regretting their choice. Here are three of the worst reasons to start Social Security benefits early so you can make sure none of these apply to you before choosing an early claim.
1. You are afraid that the benefits program is running out
A major reason why some people claim benefits early is because they fear Social Security won’t be there for them in the future. Terrifying headlines about how the Social Security trust fund is slated to fall short and necessitate an automatic benefit cut in 2034 promotes these kinds of decisions.
In reality, it is almost impossible to imagine that future retirees will not receive the promised benefits. First, even if the trust fund runs out, retirees will still get 78% of the money they are entitled to because there will be enough income generated by the current employees to pay out this amount. Second, legislators have been very reluctant to propose anything even… sounds like cutting Social Security, so they will almost certainly take action to avoid benefit cuts.
If you anticipate a reduction in benefits in the future and make an early claim based on that fear, you’re guaranteeing that you’ll get the exact same type of monthly Social Security cut that you were worried about — and you’re very unlikely to. that you will face if you wait.
2. You Don’t Understand How Early Filing Penalties and Deferred Retirement Credits Work
A misunderstanding about how benefits work is another big reason why people claim Social Security early and end up regretting it.
The Social Security benefits formula is undoubtedly confusing, but there are a few simple things to understand how it works to make an informed choice:
- You will get your standard benefit (principal insurance amount) if you start checks at full retirement age: Your standard benefit gives you a percentage of the inflation-adjusted average wage over the 35 years that you earned the most.
- Your standard benefit will be reduced if you apply for benefits before FRA: You will lose 5/9 of 1% of your standard payout per month for each of the first 36 months you get checks before FRA and 5/12 of 1% for any previous month you claim before that time. A claim made at age 62 with a full retirement age of 67 would result in as much as 30% cut in benefits.
- Your standard benefit will be increased if you claim after FRA. You will receive 2/3 of 1% of your standard monthly benefit for each month you defer after reaching full retirement age. Deferred retirement loans can be earned up to age 70, so there’s no point in waiting any longer to start your checks.
If you don’t really understand how this works, you may not know how much an early claim could cost you and could inadvertently reduce your benefits because you want to get your hands on them and can’t properly weigh the costs. cons.
3. You think the benefits will be recalculated later
Another common mistake people make is claiming benefits early on the assumption that they will be converted to the standard benefit at full retirement age. If you start your checks sooner rather than later because you don’t think it will do any lasting damage, you will probably regret your choice as this is simply not true.
The reduction in benefits arising from an early claim is permanent and affects all future cost of living adjustments (COLAs or Social Security increases). Your monthly income will never return to the level it would have been if you hadn’t claimed early.
The good news is that understanding more about how the benefits program works can help ensure that if you claim early, you’re doing it for the right reasons. Or you could simply decide to defer filing your benefits so that you can maximize your monthly income and have more Social Security money to live on in your later years.