How much will my Social Security be reduced if I retire at 65?

For those born in 1960 or later, full retirement age is 67, meaning retiring at 65 results in a permanent reduction in monthly benefits. Understanding precisely how much your Social Security will be reduced if you retire at 65 is crucial for effective retirement planning and maximizing your lifetime income. This reduction is calculated based on the number of months you claim benefits before your full retirement age (FRA).

Quick Summary

The exact reduction in your Social Security benefits when retiring at 65 depends on your full retirement age (FRA), which is 67 for those born in 1960 or later. Claiming benefits 24 months early results in a permanent monthly benefit reduction. The amount is calculated using a specific formula that depends on the number of months you claim early.

Key Points

• Benefit Reduction at 65: If your full retirement age is 67, claiming benefits at age 65 results in a permanent 13.33% reduction of your monthly payment.

• Full Retirement Age (FRA): For anyone born in 1960 or later, the FRA is 67. Claiming at any point before this age results in a permanent reduction.

• Formula for Reduction: The percentage reduction for early retirement is calculated based on the number of months you claim before your FRA, using a multi-tiered formula.

• Long-Term Impact: While you receive payments for a longer period by claiming early, the permanent reduction could lead to lower total lifetime benefits, especially if you have a longer than average life expectancy.

• Spousal and Survivor Benefits: Your decision to claim early can also permanently reduce the amount of survivor benefits your spouse will receive after your death.

• Using SSA Tools: The Social Security Administration's website offers personalized tools and calculators to help you estimate your benefits and understand the financial consequences of retiring at different ages.

• Earnings Limit: If you retire at 65 and continue to work, your benefits may be temporarily reduced if your earnings exceed the annual limit for individuals under their FRA.

Understanding Your Full Retirement Age

Your Full Retirement Age (FRA) is the age at which you are entitled to 100% of your primary insurance amount (PIA). The FRA depends on your year of birth.

• Born 1943-1954: FRA is 66.
• Born 1955-1959: FRA gradually increases from 66 and two months to 66 and ten months.
• Born 1960 or later: FRA is 67.

If your FRA is 67, retiring at age 65 means claiming benefits two years (24 months) before your FRA, leading to a permanent reduction.

The Social Security Reduction Formula

The Social Security Administration calculates the reduction for early retirement. Benefits are reduced by a percentage for each month claimed before your FRA. For someone with an FRA of 67 retiring at 65 (24 months early), the reduction is approximately 13.33%. This results in a monthly benefit at age 65 that is about 86.67% of the amount you would receive at age 67. This reduction is permanent. For a detailed breakdown of the calculation and examples of how it affects benefits at different ages, consult the {Link: Schwab website https://www.schwab.com/learn/story/guide-on-taking-social-security}.

Key Factors to Consider for Your Decision

Factors influencing the decision of when to claim Social Security include:

• Health and Longevity: Your health and family history impact life expectancy. Shorter life expectancy may favor earlier claiming, while longer life expectancy makes waiting more advantageous.
• Financial Needs: Consider if Social Security income is necessary at 65 or if other resources allow you to delay.
• Spousal and Survivor Benefits: Claiming early can reduce the survivor benefit for your spouse.
• Continuing to Work: Working before your FRA can lead to temporary withholding of benefits if you exceed an earnings limit. The earnings test changes in the year you reach FRA and stops at FRA.
• Benefit Recalculation: If benefits are withheld due to the earnings test, the SSA recalculates your benefit at FRA to credit missed payments, potentially increasing future monthly payments.

Using the SSA's Online Tools

The Social Security Administration offers tools for personalized benefit estimates:

• my Social Security Account: Provides a personalized benefit estimate based on your earnings record.
• Online Benefits Calculator: Helps visualize how different retirement ages impact monthly benefits.
• Retirement Age Calculator: Determines your exact full retirement age.

Conclusion

Retiring at 65 with an FRA of 67 results in a permanent 13.33% reduction in your monthly Social Security benefit. The decision to claim early involves balancing immediate income needs with the potential for higher lifetime benefits if you delay. Consider your health, financial situation, and use the SSA's tools to make an informed decision based on your unique circumstances.

What you should consider before retiring at 65

Retiring at 65 with an FRA of 67 results in a permanent 13.33% reduction in your monthly Social Security benefit. Consider your life expectancy and evaluate when waiting for a higher monthly payment might result in more total lifetime benefits. Medicare eligibility begins at 65, so plan for health insurance. Understand how claiming early affects potential survivor benefits for your spouse. Utilize the personalized tools on the SSA website for accurate benefit estimates. Be aware of the Social Security earnings limit if you work before your FRA. For a more detailed guide on these considerations, visit the {Link: Schwab website https://www.schwab.com/learn/story/guide-on-taking-social-security}.

Frequently Asked Questions

What is my full retirement age?

Your full retirement age depends on your birth year. For those born in 1960 or later, it is 67. For people born between 1943 and 1959, the FRA is gradually increased from 66 to 66 and 10 months.

Does the reduction last forever?

Yes, the reduction for claiming early is permanent. Your monthly benefit amount will be permanently lower than what you would have received at your full retirement age, though it will still receive cost-of-living adjustments (COLA).

What if I keep working after retiring at 65?

If you are under your full retirement age and continue to work, your Social Security benefits will be reduced if you earn over a specific annual limit. The SSA will withhold $1 for every $2 you earn over the limit in 2025 until the month you reach your FRA.

Can I increase my benefits after claiming at 65?

Yes. If your benefits were withheld due to the earnings test, the SSA will recalculate your monthly benefit amount at your full retirement age to give you credit for the months of missed payments. This results in a slightly higher monthly payment going forward.

How does this affect my spouse?

Claiming early can reduce the amount of survivor benefits your spouse might receive. If you pass away first, your spouse will be eligible to receive your benefit amount, but if you claimed early, that amount will be permanently lower.

Is there a financial tool I can use to calculate my benefits?

Yes, the Social Security Administration (SSA) provides online tools and calculators on its website (ssa.gov/myaccount) that can help you estimate your personal benefits based on your earnings record and compare different claiming ages.

Should I apply for Medicare at 65 even if I delay Social Security?

Yes, you should apply for Medicare three months before your 65th birthday, even if you plan to delay your Social Security retirement benefits. If you wait longer, your Medicare medical insurance (Part B) and prescription drug coverage (Part D) may cost more.