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Social Security Q&A:
How does retirement age affect benefits |
by Bill Hunot, Public Affairs
Specialist for the Social Security Administration
Q. I turned 62 last year. I've heard that my
Social Security benefits will always be 20 percent lower if I
take them at 62. But what if I wait until I'm 63 or 64; will I
still lose 20 percent?
A. That 20 percent reduction applies only to retirees who
start receiving Social Security checks 36 months before their
full-retirement age.
Waiting longer to start benefits results in a higher benefit
amount. For someone with a full-retirement age of 65, taking
benefits at 63 results in a reduction of 13.3 percent. And
starting at 64 reduces benefits by 6.7 percent.
Permanently reducing the benefits of "early" retirees is
intended to encourage workers to wait until full-retirement age
to start drawing out of the system. Despite the reduction, four
of five retirees start their benefits before full-retirement
age.
Social Security counts the number of months a retiree will take
benefits before full-retirement age. That number is multiplied
by a small amount, 0.556. The result is the percentage of
reduction.
Age-62 benefits have been 80 percent of full benefits because
the difference between age 62 and age 65 is 36 months. And 36
months multiplied by 0.556 percent per month equals a 20 percent
reduction.
Use the following formula to reduce benefits that are taken up
to 36 months early. "Reduction months" and "RMs" are the number
of months a retiree will take benefits before full-retirement
age (FRA). This formula works because 0.556 percent equals
1/180th.
In algebra:
(full benefit) * (180 - RMs) / 180 = (reduced benefit)
In English:
1. Subtract the reduction months from 180.
2. Divide by 180.
3. Multiply that result by the full benefit.
Example 1: Bob was born in 1935. His full-retirement age
is 65. If he starts receiving Social Security at age 64 years
plus 11 months, he'll get one check before FRA which will reduce
his benefit to 99.44 percent of his full amount.
Remember that this reduction is permanent: Reduced benefits
don't increase at full-retirement age. Bob's first check will be
99.44 percent. His last check (for the month before his death)
will be 99.44 percent.
Example 2: Carol was born in 1938. Her full-retirement
age is 65 plus two months. She is eligible for benefits at 62,
but she elects to delay for six months. Since she'll draw 32
checks before FRA, her benefit will always be 82.2 percent of
her full amount.
Because FRA is increasing and the minimum retirement age is
fixed at 62 (see
www.ssa.gov/retire/retirechart.htm), many retirees will be
taking benefits more than 36 months before FRA. That will result
in a reduction of more than 20 percent. Each additional
reduction month caused by increasing the FRA will cost retirees
0.417 percent of their benefits.
Use the following formula if the number of reduction months is
greater than 36. It's much easier than working with the two
different reduction percentages. This formula works because
192/240ths equals 80 percent and 1/240th equals 0.417 percent.
In algebra:
(full benefit) * (192 - RMs + 36) / 240 = (reduced benefit)
In English:
1. Subtract the reduction months from 192.
2. Add 36.
3. Divide by 240.
4. Multiply that result by the full benefit.
Example 3: Ted was born in 1938. His full-retirement age
is 65 plus two months. If he takes benefits at 62 -- that's 38
months before his FRA -- his benefit will be permanently reduced
to 79.17 percent of his full amount.
Example 4: Alice was born in 1953. Her full-retirement
age is 66. If she takes Social Security at 62, she'll get 48
checks before FRA. Her permanent reduction will be 25 percent:
She'll always get 75 percent of her full amount.
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