Understanding Full Retirement Age
Your full retirement age (FRA) is the age at which you are entitled to receive 100% of your primary insurance amount (PIA), which is your basic benefit based on your lifetime earnings. The FRA depends on your birth year. For anyone born in 1960 or later, the full retirement age is 67. Claiming benefits before your FRA permanently reduces your monthly check, while delaying benefits past your FRA increases them through delayed retirement credits.
The Permanent Reduction for Retiring at 65
If you were born in 1960 or later and choose to start receiving Social Security benefits at age 65, you will have retired 24 months before your full retirement age. The Social Security Administration (SSA) applies a permanent reduction to your benefit to account for the fact that you will receive payments over a longer period of time. This reduction is not temporary. For someone with an FRA of 67, claiming benefits at 65 results in a permanent reduction of approximately 13.3%. This is a crucial point many people overlook, believing their benefit will simply reset or increase once they reach their FRA.
How the Reduction is Calculated
The SSA reduces your benefit by five-ninths of one percent for each of the first 36 months before your FRA. If you retire more than 36 months early (e.g., at age 62), an additional reduction is applied. For retiring at 65, this calculation looks like this: 24 months x 5/9 of 1% per month = a permanent reduction of about 13.3%.
Boosting Your Benefit After an Early Start
While your benefit will not automatically increase at age 67 if you started at 65, there are two main ways it could still go up:
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Higher Earnings Recalculation: The SSA calculates your benefit based on your 35 highest-earning years. If you continue to work after beginning your benefits and your new earnings are higher than one of your previous 35 years, the SSA will automatically recalculate your benefit and replace the lower-earning year. This could result in a slight increase. This happens automatically each year, and you don't need to apply for it.
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Suspending Your Benefits: If you have already reached your FRA, you can voluntarily suspend your benefits. This allows you to earn delayed retirement credits (DRCs) until age 70, just as if you had never claimed them early. If you suspend your benefits at age 67 after having claimed at 65, you can earn 8% per year in DRCs for the next three years. When you resume benefits at 70, your monthly payment will be significantly higher.
Comparison: Retiring at 65 vs. Waiting Until 67
| Feature | Claiming at 65 | Waiting until 67 (FRA) |
|---|---|---|
| Monthly Benefit | Permanently reduced | 100% of your Primary Insurance Amount (PIA) |
| Lifetime Income | Lower total payments if you live a long life due to smaller checks over a longer period. | Higher potential lifetime income if you live past the 'break-even' point, around age 80. |
| DRCs | Not applicable; DRCs are only earned after your FRA. | Can be earned from ages 67 to 70 for an 8% per year boost. |
| Working & Earning | Benefits are subject to the earnings test limit until FRA, which may temporarily reduce or withhold payments. | No earnings limit; you can earn as much as you want without affecting your benefits. |
Is Retiring at 65 the Right Choice for You?
The decision to claim Social Security early is personal and depends on several factors. While you'll receive a reduced benefit, some people prioritize having access to income sooner. However, for those concerned about maximizing their monthly payout, waiting until your full retirement age, or even longer, is the better strategy. Consider your overall financial health, longevity expectations, and other retirement income streams before making a final decision. Consulting a financial planner can help you understand the long-term impact of your choice.
For more information on when and how to claim your Social Security benefits, visit the Social Security Administration website.
Conclusion
In summary, if you retire at 65, your benefits are permanently reduced and will not automatically increase at age 67. The age of 67 is your full retirement age, and claiming at 65 means you have accepted a lower payment for life. To receive your full benefit, you must wait until your FRA. For a larger benefit, delaying past 67 until age 70 is the best route, as it allows you to accumulate delayed retirement credits. If you have already started at 65, your options are to potentially get a small boost from higher earnings or to suspend your benefits at FRA to earn more credits. Evaluating your financial needs and long-term goals is essential to making the best decision for your retirement.
