Understanding Social Security and Full Retirement Benefits

Social Security payments have been coming out of your paycheck for your entire career, and many workers feel strongly that they want to begin taking their Social Security retirement benefit as soon as they’re eligible at age 62. However, claiming retirement benefits early could significantly impact your monthly Social Security payment and your cash flow during retirement. In deciding when to take Social Security, there are several things to consider: cash flow, longevity and retirement assets. Of course, there are situations where individuals will need to take their Social Security immediately at 62, but it is important to understand the impact of taking Social Security before Full Retirement Age and the potential of leaving money on the table that you’ve paid into the Social Security System. 

How does it work? 

Eligible workers can elect to take Social Security as early age 62, but for full retirement benefits, the Social Security Administration (SSA) establishes the Full Retirement Age based on a workers’ year of birth (see chart below). 

If an individual waits until they reach their FRA (Full Retirement Age) to begin taking Social Security, they will receive 100% of their retirement benefit due. 

What If I decide to take SS before FRA?

If you decide to take Social Security retirement benefits before reaching FRA, your Social Security benefits are reduced. Furthermore, the earlier you decide to take Social Security, the more your benefit will be reduced. Technically speaking, “In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before full retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.”1 In other words, if your full retirement age is 67 and you begin taking Social Security at 62, your monthly retirement benefit will be reduced by almost 30%. Conversely, if you wait until after your FRA to take Social Security, your monthly benefit will increase by 8% each year until age 70. After age 70 the amount of retirement benefit remains unchanged. 

Can I change my mind once I take Social Security?

The Social Security Administration allows you to withdraw your claim to Social Security within twelve months of taking retirement benefits. In order to withdraw the claim, you must formally make the request in writing, and repay all the retirement benefits you received within that twelve-month period. Once approved, you can choose to re-apply for Social Security at a future date. If you do not withdraw your claim in that twelve-month window, your Social Security retirement benefit cannot be changed. 

Social Security benefits are an important part of an individual’s cashflow in retirement, but it is only a piece of the puzzle. Deciding when to take Social Security is an important consideration in your broader financial plan to ensure that your monthly cash flow needs are met in retirement. Our staff at Sandy Cove can help you analyze the best way to maximize your retirement benefit by running a Social Security break even analysis. In the below example, you can see the cumulative payments from Social Security at age 72, 82 & 92 compared with the starting ages of 62, 67 and 70. Please reach out to our team if you have questions on Social Security breakeven or general retirement planning. 

If you are married or divorced and are planning on taking Spousal Social Security benefits, the rules are slightly different. If you wait until your full retirement age you will receive up to 50% of your spouse’s or ex spouse’s retirement benefit. If you decide to take it early at age 62, the percentage is reduced. For example, if you claim benefits at age 62 you could receive as little as 33% of your spouse’s or ex spouse’s retirement benefit. Conversely, the most you can receive from a Spousal Social Security claim is 50%, therefore, there is no benefit to waiting beyond Full Retirement Age. Social Security can be quite complex and there are different rules regarding various situations. If you would like to discuss your specific Social Security profile, please reach out to our team at Sandy Cove Advisors.   

To best understand your Social Security eligibility and benefit estimate, we recommend you log in to SSA.Gov/myaccount to review your own personal Social Security details. This will allow you to see your work credits, retirement benefits, monthly retirement estimate and work history.