Retirees in America have a full retirement age (FRA) for Social Security. It's between 66 and four months and 67. Waiting until FRA entitles seniors to get their standard retirement benefit based on the wages they earned.
Many people don't wait, though. Retirement checks become available much sooner and it's common to make an early claim. Unfortunately, if you opt to do that, you could find yourself regretting your choice for three key reasons.
Here's what they are.
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1. You'll permanently shrink your benefit
If you claim Social Security benefits early, you reduce the amount of money you get each month.
Everyone has a standard benefit based on average wages, but they will receive that amount only if they claim benefits at their designated full retirement age. If you want benefits ahead of FRA, you can get them as soon as 62 but you'll get hit with monthly early filing penalties. These reduce your standard benefit. If you end up starting checks at 62 with an FRA of 67, the reduction is a whopping 30%.
If you want the maximum monthly income, on the other hand, you can't even start benefits at your FRA. You'll need to wait beyond it, as you can earn delayed retirement credits until age 70. That means if you begin getting payments any time before your 70th birthday, your monthly Social Security income will be smaller than it could have been.
2. You could affect survivor benefits
After you pass on, your spouse could be entitled to survivor benefits. This is equal to the higher of the two payments coming into the household for either spouse.
Unfortunately, if you were the higher earner with the larger benefit and you didn't delay claiming your payment as long as possible to maximize monthly Social Security checks, you would end up shrinking the potential survivor benefits your widow(er) could have received. This could leave your spouse struggling if you are the first to pass on.
3. Your periodic raises will be lower because they're calculated on a percentage basis
Finally, your decision to file for Social Security benefits early will reduce the Cost of Living Adjustments (COLA) you get during your lifetime.
COLAs are provided when inflation shows prices are rising. Retirees get them in most years. They are calculated as a percentage of current benefits though. So if you could have had a standard benefit of $1,500 at full retirement age but you shrunk it by 30% by claiming early, your benefit would be just $1,050 per month instead. If you get a 2% raise, you would receive just $21 extra per month instead of $30.
Since your COLA is lower with a smaller starting benefit, your payment will never catch back up to the amount it could've been had you waited to claim Social Security. If you end up relying on these benefits as a large part of your income -- which can happen late in life once savings starts to fall -- you could really regret the fact that your payments have been made smaller for the rest of your life.
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