January 18, 2022

You will reduce your Social Security income by 30% if you take this step | Personal Finance

But you do not have to wait until FRA to apply for your benefit. Instead, you can sign up as early as age 62 — an option many seniors are quick to jump to.

It’s easy to see the appeal of applying for Social Security early. But there’s one notable downside: for every month you claim benefits before FRA, they take a permanent hit.

If you apply for Social Security a year before you reach FRA, your benefit will be reduced by about 6.67%. That’s not necessarily a catastrophic reduction.

But if you claim benefits at the earliest possible age of 62, you’ll cut that income stream by 30% if your FRA is 67. And that’s a hit that might be hard to overcome, especially if you retire without such a robust nest egg.

That’s why it’s important to do two things before applying for Social Security:

  1. Learn your FR.
  2. Set up a retirement budget to see how much monthly income you need to cover your expenses.

Once you’ve put that budget in place, you’ll find yourself seeing higher expenses than you initially expected. And that might motivate you to hold off on applying for Social Security until FRA or even after. For each year that you defer your claim after FRA, your benefit will increase by 8%, up to age 70. And that boost, like any reduction you encounter, will be permanent.

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