Retirees in America have a full retirement age (FRA) for social security. It is between 66 and four months and 67. Waiting until the FRA entitles seniors to receive their standard pension based on the salary they have earned.
However, many people do not wait. Pension checks become available much faster and it is common to make an early claim. Unfortunately, if you choose to do so, you may find yourself undoing your choice for three important reasons.
Here’s what they are.
1. You will permanently shrink your advantage
If you claim Social benefits early, you reduce the amount you get each month.
Everyone has a standard benefit based on the average salary, but they will only receive this amount if they apply for benefits at their stipulated full retirement age. If you want benefits up front FROMyou can get them as soon as 62 but you will be subject to monthly fines for early filing. These reduce your standard performance. If you end up starting checks at 62 with an OFF of 67, the reduction is as much as 30%.
However, if you want the maximum monthly income, you can not even start benefits on din FRA. You will have to wait beyond that as you can earn deferred pension credits up to 70 years. This means that if you start receiving payments before your 70th birthday, your monthly social security income will be less than it could have been.
2. You can affect the survivor benefits
After you move on, your spouse may be entitled to survivor benefits. This is equal to the higher of the two payments coming into the household for both spouses.
Unfortunately, if you were the higher wage earner with the greater benefit, and you did not do delaying demanding your payment for as long as possible to maximize the monthly social security checks, you would end up shrinking the potential survivor benefits that your widow could have received. This can make your spouse struggle if you are the first to pass on.
3. Your periodic increases will be lower because they are calculated on a percentage basis
Finally, your decision to apply for Social Security benefits early will reduce the cost of living adjustments (COLA) you receive over the course of your life.
COLAs are delivered when inflation shows that prices are rising. Retirees get them for most years. However, they are calculated as a percentage of current benefits. So if you could have had a standard benefit of $ 1,500 at full retirement age, but you screwed it down by 30% by claiming early, your benefit would only be $ 1,050 a month instead. If you get a 2% increase, you will only receive $ 21 extra per month instead of $ 30.
Since your COLA is lower with a smaller initial benefit, your payment will never reach the amount it could have been if you had waited to claim social security. If you end up relying on these benefits as a big part of your income – which can happen late in life when savings start to fall – you can really regret that your payments have diminished for the rest of your life.