Understanding Your Social Security Full Retirement Age and Making Informed Decisions

To make Wealthtender free for readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a conflict of interest when we favor their promotion over others. Read our editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.
➡️ Find a Local Advisor | 🎯 Find a Specialist Advisor

Everyone, at some stage, retires. We all stop working eventually. Thus making a retirement plan is an essential pillar of your financial life. The Social Security retirement benefit is one of its most significant components. You should understand how it works and make informed decisions to ensure a comfortable retirement.

Deciding when to take your retirement benefit can impact your financial future. Options range from taking early retirement benefits to waiting until full retirement age.

Let’s explore the various aspects of the Social Security retirement age. We’ll also provide insights to help you make informed decisions for your future.

At age 62, you can begin receiving Social Security benefits. However, you are only entitled to the full benefits upon reaching your social security full retirement age (FRA).

The FRA is currently 66 years old for anyone born in 1955. It will incrementally increase per year to reach 67 in a few years.

You can delay taking your benefits from your FRA up to age 70. Doing so will increase your benefit by ⅔ of 1 percent each month. Thus, you can receive the highest benefit payable on your record if you start collecting Social Security at age 70.

Retirees who choose to receive their benefits early will receive a percent less. The Social Security Administration (SSA) provides a chart to help you calculate this reduction. Select your year of birth to calculate how much your benefits reduce from age 62 up to your FRA.

The most significant benefit is $3,345 monthly if you file at your FRA at age 66. But if you qualify and delay claiming until age 70, you can receive the absolute highest benefit of $4,194 per month.

Consider the advantages and disadvantages of taking your benefit before or after your FRA. Additionally, each person’s situation is different. Thus, one must consider all the factors when deciding when to receive retirement benefits.

The SSA retirement age chart calculates how your monthly payout will be reduced by if you start receiving them early. It also shows that the reduction percentage decreases as your birth year approaches 1960.

The chart also highlights that spousal benefits are automatically reduced by 50%. Further reductions apply based on the age at which they start receiving benefits.

Penalty for Taking Out Benefits Early

Retirement benefits depend on the age of retirement. If you retire early, benefits reduce by 5/9 of a percentage point per month up to 36 months and then by 5/12 of a percentage point per month after that. For example, retiring at age 62 (rather than waiting till you are 67) results in a reduction of up to 30% in benefits.

Delaying retirement can increase benefits through delayed retirement credits. Primary beneficiaries who retire at their FRA receive 100% of their primary insurance — and their spouse can receive 50%.

Retiring early results in significant reductions in monthly benefits.

How Your Benefits Will Be Taxed

Your Social Security benefits are taxed (up to 80%) depending on your other income.

You can use Form SSA-1099 to determine if your benefits are subject to tax and the tax rate. You can make estimated tax payments if you have to pay social security taxes.

Strategies to limit taxes for Social Security benefits include:

Placing retirement income in Roth IRAs
Withdrawing taxable income before retiring
Purchasing an annuity

How To Determine When To Take Socials Security Benefits

Cash Needs

Consider your cash needs to determine when to take Social Security retirement benefits. If you have other sources of income and can be flexible, you may benefit from delaying taking benefits.

But if you rely on Social Security income to make ends meet, consider postponing retirement. You can also work part-time to maximize your benefits or diversify your income options.

Life Goals

You must consider your life goals when taking Social Security benefits. If you expect a shorter life expectancy, take early withdrawals. Delaying Social Security can result in larger benefits if you expect to live longer. You can use the SSA’s life expectancy calculator to estimate your life expectancy.

Marital Status

Consider your spouse’s age, health, and benefits, especially if they are the higher-earning spouse. Divorced individuals married for ten years or more can receive benefits based on their former spouse’s record.

Widowed individuals can receive their retirement benefits or 100% of their deceased spouse’s benefits — base this decision on whichever is higher. You must make the most effective use of the spousal, survivor, and worker benefits. It is best to work with a financial planner.

Employment Status

By receiving your Social Security benefits before FRA — and continuing to work — you will have temporarily reduced benefits. When you reach full retirement age, the reduction reduces. Once you reach FRA, your benefits no longer reduce, regardless of how much you earn.

Any benefits reduction is recalculated to provide a higher benefit at FRA. So don’t cut back on work or worry about earning too much because of the reduction in benefits.

What’s Wrong With The Current Retirement Age?

The retirement age has been a controversial issue in the United States. Some politicians advocate increasing it to solve funding shortfalls in programs. But many experts argue that this would reduce benefits and not work for the economy.

Labor economists argue that the retirement age was already increased once in 1983, and it failed. Additionally, college-educated white workers can work until they are 70. Other groups do not have the same privilege.

Some experts say increasing the normal retirement age could exacerbate those differences.

Putting The Pieces Together for a Secure Future

Your full Social Security retirement age determines when you can begin receiving benefits. It also determines how much you will receive each month. Understanding it is an essential step toward making informed decisions for your future.

Learn about the rules and regulations of Social Security. It would be best if you also planned accordingly based on your circumstances.

Now that you’ve learned how to take advantage of your social security benefits find some time and plan the best time you should reap your retirement benefits.

FAQs

Yes, you can claim Social Security at age 66 and still work full-time. However, your monthly benefit will reduce if you collect benefits before your FRA.

Delaying your benefits’ start date past your FRA can increase your monthly benefit amount. Once you reach your FRA, you can continue working and collect Social Security.

Therefore, make an informed decision about when to apply for benefits. Based this decision on your circumstances and financial needs. Consider your current cash needs, health, family longevity, and other sources of income.

What Happens if You Change Your Mind?

You can withdraw or cancel your application within 12 months of approval. But you can only cancel it once. You will also have to repay any payments you and your family received. This includes taxes, Medicare premiums, and garnishments.

You must complete Form 521: Request for Withdrawal of Application (PDF) to cancel your application. Mail or fax it to the closest Social Security office.

This article originally appeared on Wealth of Geeks.