For American society, the Social Security System is one of the most relevant and most valued federal programs. It is, without a doubt, a fundamental piece in the rule of law and a central piece in the democratization of access to retirement. However, the system is complicated, intricate, and gigantic in its ramifications and what you need to know to make informed and wise decisions with a view to retirement age.
There is a common mistake that some people about to retire make, and that they could avoid under the right conditions and with the right information. And this potentially wrong decision could cost you many thousands of dollars over the course of your retirement years. Let’s take a look at how the Social Security computes payments and how one simple decision could get you additional thousands of dollars every month.
Maximizing Social Security Retirement – Avoid This Wrongful Decision and Get Extra Money
If you’re on your way to retirement, you better understand the concept of the Full Retirement Age (FRA). The FRA signifies the age at which workers can claim full, unreduced Social Security retired-worker benefits, though it’s important to note that different rules apply to disabled workers.
The decision of when to claim benefits in relation to the FRA can significantly impact the monthly benefit amount. Workers have the option to claim Social Security retired-worker benefits as early as age 62, which is known as the Early Eligibility Age (EEA).
However, those who opt for early claiming are subject to a permanent reduction in their benefits to account for the longer expected period of benefit receipt. This reduction is referred to as an actuarial reduction. Conversely, individuals who delay claiming benefits past the FRA receive delayed retirement credits, leading to a permanent increase in their monthly benefits to compensate for the shorter expected benefit receipt period. These credits apply up to the age of 70, beyond which further delays do not result in increased monthly benefits.
Benefit adjustments are made based on the number of months before or after the FRA that a worker chooses to claim benefits. These adjustments are meticulously designed to ensure that, on average, workers receive roughly the same total lifetime benefits, regardless of when they choose to initiate their benefits, based on average life expectancy.
Is Full Retirement Age the Best Time to Claim Your Social Security Benefits?
The concept of Full Retirement Age has evolved over time. Initially set at 65 when Social Security was introduced in the 1930s, it underwent a significant change in 1983 as part of the Social Security Amendments of 1983 (P.L. 98-21). These amendments were a response to the financial imbalance that the system faced at that time.
The FRA was gradually increased from 65 to 67 for workers born between 1938 and 1960. For individuals born in 1960 or later (i.e., those reaching age 62 in 2022 or later and age 67 in 2027 or later), the FRA stands at 67. The rationale behind this increase was rooted in the expectation of increased longevity and potential improvements in the health status of workers. Notably, the 1983 amendments did not alter the early eligibility age of 62; however, the adjustment in the FRA resulted in more substantial benefit reductions for individuals claiming benefits between the ages of 62 and the FRA.
So, here are your options: opting for Early Eligibility Age (EEA) allows you to claim Social Security benefits earlier, providing immediate financial relief. However, there’s a catch: your benefits will be permanently smaller, compared to what you would receive at Full Retirement Age (FRA). This reduction can be substantial, affecting your long-term financial security. Conversely, waiting until FRA yields full benefits, with no reductions. Delaying retirement can result in larger monthly payments. At this point, it’s up to you what you think is better for you.