Is retirement on your radar? You may even be planning to permanently leave the job market in the coming year. If so, congratulations! You’ve certainly earned the right to focus on yourself instead of your work.
Before you call it quits and initiate your Social Security retirement benefits in 2025, though, there’s one thing you’ll want to do: Weigh the financial costs of claiming benefits now instead of waiting.
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You can receive social security benefits from the age of 62. However, you won’t receive as much money as you could have. Anyone who waits until his or her full retirement age (between 66 and 67, depending on year of birth) will see larger monthly checks.
The difference can be significant. Getting this four or five year head start on your benefits will permanently reduce your payments by as much as 25% to 30%, depending on your age.
The penalty decreases as you get closer to your full retirement age (FRA). For example, if you claim 12 months before you reach full retirement age, your monthly benefits will only be reduced by 6 2/3% of what your payments would be at FRA.
Given that the average Social Security check is currently just over $1,900, this potential difference is still not a small change for most people. It could mean a few hundred dollars a month.
That said, you should also know that waiting until after you reach your designated FRA will make your final payments even bigger. Anyone who waits until age 70 to file for benefits will see monthly payments that are between 15% and 25% higher than they would receive at official full retirement age. The table below illustrates the major financial difference between claiming early or deferred benefits.
|
Year of birth |
Full retirement age |
Percentage of full benefit by age at first claim |
||||||
|---|---|---|---|---|---|---|---|---|
|
1943-54 |
66 |
75 |
80 |
86 2⁄3 |
93 1⁄3 |
100 |
108 |
132 |
|
1955 |
66, 2 months |
74 1⁄6 |
79 1⁄6 |
85 5⁄9 |
92 2⁄9 |
98 8⁄9 |
106 2⁄3 |
130 2⁄3 |
|
1956 |
66, 4 months. |
73 1⁄3 |
78 1⁄3 |
84 4⁄9 |
91 1⁄9 |
97 7⁄9 |
105 1⁄3 |
129 1⁄3 |
|
1957 |
66, 6 months. |
72 1⁄2 |
77 1⁄2 |
83 1⁄3 |
90 |
96 2⁄3 |
104 |
128 |
|
1958 |
66, 8 months. |
71 2⁄3 |
76 2⁄3 |
82 2⁄9 |
88 8⁄9 |
95 5⁄9 |
102 2⁄3 |
126 2⁄3 |
|
1959 |
66, 10 Mon. |
70 5⁄6 |
75 5⁄6 |
81 1⁄9 |
87 7⁄9 |
94 4⁄9 |
101 1⁄3 |
125 1⁄3 |
|
1960 and later |
67 |
70 |
75 |
80 |
86 2⁄3 |
93 1⁄3 |
100 |
124 |
Data source: Social Security Administration.
Your marching orders, therefore, are to contact the Social Security Administration — online, in person, or by phone — and compare all your benefit options as they currently stand. You may find that there is a good reason to continue working for at least another year. Or you may not get enough benefit from keeping your job until age 70.
