Under the current structure, the Social Security Administration allows someone with enough work credits to choose any one of 96 months to start their retirement benefits.
Millions of retirees chose #1. This is the month they become age 62. The assumption is they have paid in for many years and wouldn’t it be nice to start getting a check every month that will last until the month they die. Wooo Hooo!
Unless they happen to die too soon, it will probably turn out to be a mistake. It can be reversed, but only if they act before they reach age 63.
Social Security is not only complicated, it’s full of acronyms and formulas and rules that for most people are a challenge to understand. “None of that matters to me; just send me a check. Now!”
FRA is one of those acronyms. It’s short for Full Retirement Age. When Social Security was enacted on August 14, 1935, the month when you could first apply for benefits was when you became 65.
Today, it’s my professional opinion is that you should not to apply until you reach your FRA, which is no longer age 65.
The last major amendment to the original legislation came in 1983. That year a schedule was adopted that slowly raised the FRA from 65 up to age 67. People were already living much longer than they did in 1935 and for this and other reasons, it became obvious that retaining age 65 as the age to start receiving benefits made the entire system financially unsustainable.
The reasons for you to wait until your FRA are many. Too many if you want a detailed explanation in this post. I’m just going to list most of them and hope that one or more resonates with you. If you need help, I suggest you go to SSA.GOV, open an account in your name, and begin to explore. It’ll be a great help to you as you work to understand what could turn out to be a very rewarding exercise.
Here are my reasons why you should wait until your FRA:
- At 62, month 1, your expected benefit will be reduced by 30%. It will go up over time, but for every check you get between then and the month you die, the 30% penalty will be in effect.
- If you earn above a certain income threshold, some of the remaining 70% is going to be held back. You won’t lose it forever, since it remains in your account as a credit, but it won’t make you happy.
- The formula used to determine your 100% check might include years where you didn’t earn very much or even nothing. You’re now stuck with that for the rest of your life.
- If you wait until your FRA, the same formula will apply. Chances are it might now include years where you made a lot more than you did 35 years ago. That means a bigger check every month for the rest of your life.
- All benefits from work credits come in three flavors: retirement benefits, spousal benefits and survivor benefits. If you’re single, there’s only one flavor, retirement benefits. If you’re married, all three could come into play. The number of variables that will determine the outcome for you can be mind boggling.
- At FRA, there is no penalty for earning more than the upper limit threshold; you can now earn as much as you can and still get 100% every month.
My conclusion from all this is to try and wait until your FRA before you first apply for retirement benefits. Unless you find yourself on the other side of the grass before the break even point, chances are you and your family will benefit from waiting.
Tony Kendzior \ August 2, 2019