The Basics: Full Retirement Age and Social Security

So, you’re getting into the last stretch of your career, and you’re thinking about Social Security and when to file.

I know what you’re thinking: What is the best strategy? When is the best time to file? When can I file? I have no idea what to do!

I agree it is overwhelming, especially considering it is one of the most important financial decisions of your life — if not the most important one. Social Security represents their most significant financial asset for many retirees— not to put too much pressure on you. ☺

Full Retirement Age Defined

According to SSA.gov, full retirement age (FRA) — sometimes referred to as normal retirement age — is defined as “the age at which a person may first become entitled to full or unreduced retirement benefits.” Unreduced retirement benefits are also known as the primary insurance amount.

For example, if you were born before 1937, you can start collecting your full benefits (also called the primary insurance amount) at age 65. If you were born after 1960, you would have to wait until age 67 to collect your full benefits. Please refer to the chart to see when you can start collecting your full benefit amount. Alternatively, you can visit SSA.gov . . . they have a great calculator that you can enter your information into, and it will tell you your full retirement age.

Taking Social Security Benefits Early and the Earnings Test

I know what you are thinking: But I have friends and colleagues who started collecting at age 62. How?

Great question. I will start with the good news first: you can too! Here is the bad news: if you start at age 62, your benefits will be reduced by 30%! Yes, you read that correctly: 30%. Here is the breakdown if your full retirement age is 67 according to SSA.gov

Age 62 is approximately 30%.
Age 63 is approximately 25%.
Age 64 is approximately 20%.
Age 65 is approximately 13.3%.
Age 66 is approximately 6.7%.

For example, let’s take a hypothetical person born either in 1960 or later, which means their FRA to receive full benefits is 67. If they were scheduled to receive 1,000 per month at age 67 and started collecting early at age 62, their benefit would be reduced to around $700 per month.

You will also need to be careful of the earnings test. The earnings test only applies to filers who have not reached full retirement age. In plain English, if you are still working and file to receive benefits before your FRA, your Social Security benefits will most likely be reduced. The Social Security Administration will deduct $1 from every $2 you earn above the annual limit. The limit for 2021 is $18,960.

Claiming the wrong strategy can be the difference of tens — if not hundreds — of thousands of dollars.

Delayed Retirement Credits

To confuse things even more, if you delay your Social Security benefits until after FRA, you could also be eligible for delayed retirement credits. If benefits are delayed until after FRA, the increase is about .67% per month that benefits are delayed until age 70; or simply put, approximately 8% per year.

That is awesome, Joe; I will delay until age 70!

Well, slow down, this may be in your best interest, or it might not be. Don’t you love statements like this? I know I hate them. I always like clear and concise answers, but it is not always that simple.

Everything I just wrote about pertains to the individual’s Social Security records. It does not, however, apply to spousal benefits or widower benefits.

Spousal Benefits and Widower Benefits

You guessed it: there are more rules and regulations for spouses and widowers. I am not going to go into great detail in this article. I will discuss how spousal benefits pertain to FRA.

Spousal benefits are benefits the spouse receives based on the husband’s or wife’s earning record when they are alive. They are entitled to the larger of the benefits based on their earning record, or if eligible, spousal benefits, which is up to 50% of the spouse’s primary insurance amount (full benefits).

You may be wondering if you can take spousal benefits early. The answer is yes, but there is a different reduction schedule, and instead of being reduced to about 30%, it is reduced to about 32.5%. Here is the breakdown according to SSA.gov:

Age 62 is approximately 67.5%.
Age 63 is approximately 65%.
Age 64 is approximately 62.5%.
Age 65 is approximately 58.3%.
Age 66 is approximately 54.2%.
Age 67 is 50% (the maximum benefit amount).

A widow or widower can start receiving reduced benefits as early as age 60 or full benefits at full retirement age for survivors. Benefits can begin as early as age 50 if you are disabled. Please refer to my other article, How to Navigate the Maze of Social Security Survivors Benefits, for more on How to Navigate the Maze of Social Security Survivors Benefits