Your full retirement age (FRA) is the age at which you can get your unreduced retirement benefit from the Social Security Administration. Your FRA will be between 65 and 67 years old, depending on your year of birth. For persons born in 1937 or earlier, the full retirement age is 65 years old. The FRA increases each year after that, until it reaches age 67 for those individuals born in 1960 or after. The chart below shows your full retirement age by year of birth.
No matter what your full retirement age is, you have the option to start receiving benefits as early as age 62 or as late as age 70. If you elect to begin receiving benefits at age 62, your FRA benefit is reduced permanently by approximately 20-30 percent, depending on your year of birth. For persons born in 1937 or earlier, the reduction would be about 20 percent. For persons born in 1960 or later, the reduction would be about 30 percent.
Conversely, for every year that you delay taking your Social Security benefit after your full retirement age, your benefits are increased by a certain percentage depending on your date of birth. This increase ranges from 5.5% for individuals born in 1933-1934 to 8% for individuals born in 1943 or later. If you delay benefits past your FRA, your year of birth and the number of months you delay determines how much your benefit can increase.
For example, let’s say you were born in 1952. In 2018, you turn 66 years old and you decide to begin taking your Social Security benefits at your FRA. If your full retirement benefit is $1,000 per month, you will receive the full $1,000 each month (less Medicare costs and tax deductions if you have elected those options). If you had decided to take your benefit in 2014 at age 62, your benefits would have been permanently reduced by 25% and you would receive $750 a month ($1,000 less $250). If you instead wait to claim your benefits until you are age 70 in 2022, you would receive $1,360, which represents an 8% increase to your benefits for each year that you delayed taking them.
You’ll want to take your benefits by age 70 because the benefit increase no longer applies after age 70 and there is no advantage to you to delay taking benefits any longer. Determining when to begin receiving Social Security benefits is a critical component of retirement planning. Make sure you know your options and the pros and cons associated with each option!
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.