There has been significant concern over news reports stating that Social Security will deplete its surplus by 2035 unless the government implements changes. This has caused some people to believe Social Security will essentially “go broke” and therefore it “makes sense” to file for benefits early. These rumors can lead you astray.
Your Social Security Is Based On Age And Earnings
Under Social Security rules, your Full Retirement Age (FRA) is when you’re eligible for 100% of your earned Social Security benefit based on your birth year. For decades, the FRA was fixed at age 65 until the Reagan Administration raised the FRA in 1983 to help ensure the program remained solvent. Now, for those born in 1943 through 1954, the FRA is 66 and scales up to age 67 for everyone born in 1960 or later. The amount you receive is based on your 35 highest–years adjusted for inflation.
“However, if you file early at age 62, your benefit is reduced by 30% for the rest of your life.”
Your Social Security Benefit Is Reduced When File Before Your FRA
You can start receiving Social Security benefits as early as age 62 but when you file before your FRA, you’re leaving money on the table. Filing early reduces your Social Security by a little over one-half of one percent for each month you receive your benefit before your FRA. For example, if you were born in 1960, your FRA is age 67. However, if you file early at age 62, your benefit is reduced by 30% for the rest of your life.
If You Continue To Work, Your Social Security Benefit Is Reduced
If you collect Social Security at age 62 and continue to work, you’ll be subject to the Social Security Earnings Limit established by the IRS each year. For 2024, the earnings limit is $22,320. If you earn more, $1 will be withheld from your Social Security for every $2 you earn above the limit. If you reach FRA in 2024 and continue to work, in the months leading up to your birthday the earnings limit is $59,520. If you earn more, $1 will be withheld from for every $3 above the limit. Once you hit FRA, there’s no limit on your earnings and your benefit is recalculated to give you credit for the amount withheld. Also, consider that up to 85% of your Social Security is subject to income taxes based on your earnings and filing status.
As you can see, filing early for Social Security can reduce the value your benefit. Connect with an FRC® trained advisor to learn more.
Sources:
https://www.ssa.gov/benefits/retirement/planner/agereduction.html
https://www.ssa.gov/news/press/factsheets/colafacts2024.pdf
