Most baby boomers can receive the full amount of Social Security they have earned at age 66. However, retirees who will turn 62 in 2017 need to wait an extra two months to collect their full Social Security payments. Starting this year the retirement age begins a gradual increase toward age 67. Here’s how the older retirement age will impact how much you receive from Social Security.
A longer wait to claim full payments. The Social Security full retirement age is 66 for people born between 1943 and 1954. For those born during the five years after that, the full retirement age will gradually increase in two-month increments from 66 and 2 months for people born in 1955 to 66 and 10 months for those born in 1959. The full retirement age is 67 for everyone born in 1960 or later.
[Read: 6 Social Security Calculators That Can Help You Decide When to Claim.]
Bigger reductions for early claiming. All retirees can begin collecting a reduced Social Security payment at age 62. But the higher your full retirement age, the bigger your benefit reduction if you sign up for Social Security on your 62nd birthday. “The change in full retirement age means a substantial benefit difference for those reaching age 62 this year and beyond,” says William Meyer, founder and managing principal of Social Security Solutions, a company that analyzes Social Security claiming strategies. “Claiming at age 62 is a bigger reduction. There are simply more months of reductions if [someone’s] full retirement age is 67 versus 66.”
A retiree with a full retirement age of 66 who starts Social Security payments at age 62 will get 25 percent smaller monthly payments. However, those who will turn 62 in 2017 with a full retirement age of 66 and 2 months will see a slightly larger deduction in monthly payments of around 26 percent if they claim payments at age 62. And workers with a full retirement age of 67 will experience a 30 percent reduction in their monthly benefit amount if they begin collecting Social Security at age 62. For example, an employee eligible for a full retirement benefit of $2,000 who claims early at age 62 would get $1,500 per month if his full retirement age is 66. But if he was born a few years later and his full retirement age is 67, he will get $1,400 per month if he begins collecting Social Security at age 62.
[Read: 6 Social Security Changes Coming in 2017.]
A smaller benefit for waiting. You can increase your monthly Social Security benefit by delaying when you start payments up until age 70. The amount of the increase depends on your full retirement age, with the biggest bonus for delayed claiming going to those with the lowest full retirement age. Baby boomers with a full retirement age of 66 could increase their Social Security benefit by 32 percent by waiting four years until age 70 to sign up. As the full retirement age increases there is less of an opportunity to earn delayed retirement credits that increase your benefit. “Your age-70 payment is based on the number of months from your full retirement age to age 70,” says Andy Landis, author of “Social Security: The Inside Story.” “You get two fewer delayed retirement credits because of the change in your full retirement age.” People with a full retirement age of 67 will only get 24 percent more by claiming Social Security payments beginning at age 70, because they are only eligible to collect delayed retirement credits for three years.
Deciding when to collect. Signing up for Social Security early means you collect smaller monthly payments over a greater number of years. Those who delay claiming Social Security collect bigger payments later on in retirement. The better claiming strategy depends on how long you and your spouse will live, with those living into their 90s and beyond having the most to gain by delaying claiming Social Security. “The vast majority of people take Social Security within a few months of retiring or turning age 62, but that leaves a lot of money on the table,” says Wei-Yin Hu, vice president of financial research at Financial Engines. “Making a seemingly modest improvement in your monthly benefit can add up to a lot and help to protect the retirement of your surviving spouse.”
[See: 10 Ways to Increase Your Social Security Payments.]
Changing your mind. If you decide to collect a reduced payment in your early 60s, those smaller payments typically last the rest of your life. But there are a few ways to undo your early claiming decision. If you signed up for Social Security in the past 12 months, you can repay all the money you received, without interest, withdraw your Social Security application, and then start payments again later at a higher rate. If you are between your full retirement age and age 70, you can suspend your Social Security payments going forward. Suspending your benefit means you will earn delayed retirement credits that will result in higher payments when you resume collecting from Social Security. However, the amount of the increase depends on your full retirement age. Those with a full retirement age of 66 could suspend payments for 4 years between ages 66 and 70, which would result in a 32 percent increase in monthly payments when benefits are resumed at age 70. Those with a full retirement age of 67 are only eligible to suspend payments for three years and would get 24 percent more by stopping payments from age 67 to 70.
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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Social Security Begins to Increase the Retirement Age originally appeared on usnews.com
