Social Security benefits are a government-sponsored safety net that has been designed to help those at or near retirement age, the disabled, and the survivors of deceased workers. These benefits are calculated from a worker's earnings history, based on the highest 35 years of earnings1, and are provided by the Social Security Administration (SSA).

Full retirement age (FRA) refers to the age at which you can begin receiving your full Social Security benefit amount. The FRA is 66 for those born between 1943 and 1954, gradually rising to 67 for anyone born in 1960 or later2. That said, people can also begin collecting smaller benefit payments as young as 62.

Social Security benefits come with a permanently reduced monthly payment when they are taken before FRA, but taking them early does serve some useful purposes, and there are strategies to do it without losing too much money.

• Early retirement: Workers can also retire before their full retirement age and begin receiving benefits as early as age 62, however, this comes at a cost of lower benefits. They are permanent reductions and can be up to 30% less than the maximum benefit amount3.
• DEATH / DISABILITY BENEFITS: They may also be eligible for SSDI if they become disabled prior to retirement age. SSDI provides a safety net for people so severely disabled that they cannot work, allowing them to claim Social Security money sooner than they would otherwise have been able to4.
• Spousal and Survivor Benefits: In addition to their own benefits, spouses and survivors may access benefits depending on the earnings history of their spouse. For example, a spouse is eligible for benefits as early as age 62, but these will also be reduced if taken before FRA5.

On Strategic and Cost Implications

There are so many variables to consider before taking early access to Social Security benefits:

• Life Expectancy: If the person has health issues or if a family history of lower life expectancy warrants it, he or she should consider claiming benefits early.
• Current Financial Needs: Individuals who find themselves struggling financially may require immediate income from early benefits, despite the fact that doing so will permanently reduce their monthly benefits.
• Employment: The SSA imposes an earnings limit to determine how much beneficiaries can earn and continue to receive early benefits, so going back to work may reduce benefits sometimes on a temporary basis. This limit stands at $21,2406 for the year 2023.
• Break-even Analysis**: Working out the break-even age, or the age at which the cumulative benefits of taking early versus delayed benefits bump up against each other, can assist in planning. This analysis is most helpful for those uncertain about when to start their benefits.

Real-World Examples

Take for example, Jane, a 63-year-old retiree who started taking Social Security at 62 because a health crisis required it. Her monthly benefits are less, but for the moment, with the cash flow, she can manage. On the other hand, Tom decided to wait to take his benefits until he turned 70, increasing his monthly payment and total benefit over his lifetime (he's currently still quite healthy at 66).

Key Takeaways

For many people, early access to Social Security benefits is an option, but the upsides must be carefully balanced with the negative longterm effects of taking money early. By grasping the legal avenues and strategic factors, prospective applicants can choose wisely to suit their financial aspirations and life situations.

References

• Social Security Administration: Retirement Benefits
• Social Security Administration: Full Retirement Age
• Social Security Administration: Early or Delayed Retirement?
• Social Security Administration: Disability Benefits
• Social Security Administration: Benefits for Your Family
• Social Security Administration: How Work Affects Your Benefits