Social Security retirement age benefit reduction, Digi Mart USA News (Rye, New York): Holding Court is a column by retired Rye City Court Judge Joe Latwin, who retired from the court in December 2022 after thirteen years of service to the City. Latwin appeared on Episode 8 of Season 1 of the MyRye.com podcast Conversations with Doug French.
When you get older, you will have to decide when to apply to start Social Security retirement benefits. Age 62 is the earliest you can begin receiving them.
Starting at 62 permanently reduces your monthly payment, typically by 25–30% compared with waiting until full retirement age (FRA), which is 66–67 depending on birth year. If you were born after 1964, your full retirement age is 67.
For example, if you would otherwise be eligible for a $2,000 monthly benefit, retirement at 62 would pay only $1,400 per month. This reflects a reduction of 5/9 of 1% for each of the first 36 months before full retirement age, then 5/12 of 1% for additional months.
Claiming early also means you receive less from future Social Security cost-of-living adjustments (COLA). If the COLA is x%, you receive that percentage on a smaller amount, and the reduction compounds over time because each year’s COLA is based on the prior benefit plus the adjustment.
If your benefit is $2,000 a month and the COLA is 3%, the next year’s COLA would be based on $2,060. This reduction persists.
Also, while you may apply while still working, earnings before FRA may temporarily reduce payments.
Applying at 62 may still make sense for some people. Those who expect a shorter lifespan, such as people in poor health who fear they will not reach full retirement age, may choose to take benefits early.
This may be an easier decision for single people who do not have to worry about the impact on a surviving spouse. Others may need income immediately, since bills and expenses do not wait until age 70, or may be coordinating spousal benefits.
A spouse who begins receiving benefits before FRA also receives a reduced benefit. Some may also fear Social Security funds will run out before age 70.
According to a recent survey cited in the column, retirees are concerned that Social Security "will not be there for me" when they are ready to retire. That concern is even higher (75%) among women.
Overall, fears of cuts in Social Security benefits are high (87%), with most respondents anticipating reductions.
On the other hand, you can delay claiming retirement benefits. Waiting until age 70 increases your monthly benefit by at least 24% if your full retirement age is 67, an 8% increase for each year you delay past FRA.
If your monthly benefit would be $2,000 at age 62, waiting until 70 would start you at $3,071 per month. COLAs would also be larger, because the base amount to which the percentage increase applies would be larger.
The break-even age, where waiting starts to pay off, is typically around 80 to 82. The increased benefits last for the rest of your life.
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