Options for single individuals who are not entitled to benefits from someone else’s work record are limited. Basically you are limited to age-related choices. You can file for benefits any time after age 62 and your monthly benefit amount will be based on your full retirement age (FRA) benefit and your age when you begin to receive benefits.
Important things to take into consideration as an individual when deciding when to file for benefits are your health, family medical history, and of course your financial health. If you have a financial advisor you may want to seek their advice before making your decision. Social Security is a good base retirement for your other retirement income as it is a lifetime benefit. That being said, once you file your application the options for changing your decision are limited. For more information on this subject see “Do Over Provision” later in this guide.
Reduction Factors
Individuals who claim benefits prior to the full retirement age have their full benefits multiplied by a reduction factor. This factor is generally equal to five-ninths of 1 percent (0.56 percent) for each month the person claimed prior to FRA. The reduction factor changes to five-twelfths of 1 percent (0.41 percent) if benefits are received more than 36 months before FRA. In this case a 20% penalty is also applied for the first 36 months.
If you elect to begin receiving Social Security benefits within 36 months of FRA the monthly payment will be reduced 5/9 of 1% (0.56%) for each of those months. This number is known as the reduction factor. If you elect to begin receiving Social Security benefits when there are more than 36 months before FRA the monthly payment will be reduced 20% for the first 36 months plus 5/12 of 1% (0.41%) for each month in excess of 36.
The good news is there is a much easier way to calculate how reduction factors will affect your monthly benefits. You can use a formula that allows you to enter reductions in terms of months to simplify calculations. Let me show you how this works.
If the reduction factor (number of months prior to FRA) is 1 through 36, subtract 180 by the reduction factor and then multiply it by the FRA benefit amount. Then divide that total by 180. This will equal your monthly benefit amount.
Example: 36 months or less before FRA
Say your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 63. The reduction factor (number of months prior to FRA) is then 36. To calculate your monthly benefit you would use the formula below:
180 – 36 = 144
144 x $1500 = 216000
216000 / 180 = $1200
Your monthly benefit at age 63 would be $1200.
*All monthly benefit amounts are rounded down to the next dime.
If the reduction factor (number of months prior to FRA) is more than 36 your Social Security benefits will be determined using a different formula. Subtract 192 by the number of months in excess of 36 and multiply it times the FRA benefit amount. Then divide that total by 240. This will equal your monthly benefit amount.
Example: 37 months or more before FRA
If your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 62, your reduction factor will be 54 (see the note below). To calculate your monthly benefit you would use the formula below:
174 x $1,500 = 261,000
261,000 divided by 240 = $1,087.50
Your monthly benefit at age 62 would be $1,087.00.
Note – Benefits are not payable for any month before you are age 62 for the entire month. Social Security determines you reach the age of your birthday the day before your birthday. Only those individuals born on the 2nd of the month will be eligible to receive benefits the month of their 62nd birthday. In that case, the maximum reduction factor for someone whose FRA is age 66 is 48. For everyone else the maximum reduction factor is 47.
Benefits Options for Individuals
Receive Benefits at Age 62
Receive Benefits at FRA (currently age 66 if born in 1954 or earlier; age 66, 2 months if born in 1955; age 66, 4 months if born in 1956; and age 66,6 months if born in 1957)
Receive Benefits at Age 70
If you take benefits at age 62 and your full retirement age is 66, 6 months, you will receive a reduction of about 27.5% in monthly benefits over FRA. In 2019, earnings in excess of $17,640 will affect monthly benefits. Social Security will deduct $1 in benefits for every $2 you earn over $17,640. These figures increase in the year you reach FRA to $46,920 for only those months before the month you reach FRA and $1 of benefits are deducted for every $3 you go over the $46,920.
If you delay benefits past FRA you will receive a 5/8 of 1% for each month you delay benefits which equals 8% per year. If your FRA is age 66, you will receive a 32% increase in monthly benefits over FRA if you wait until age 70.
The following is an example of monthly benefits and what you might expect to receive over your lifetime in Social Security benefits:
Date of Birth: 01/03/1957
FRA Benefit: $2,094
Expected Death Age: 84.08 years
No cost of living increases were included.
Options
Age 62 benefit – Monthly benefit $1,526 (lifetime benefit $413,546)
Age 66, 6 months benefit – Monthly benefit $2,094 (lifetime benefit $456,492)
Age 70 benefit – Monthly benefit $2,680 (lifetime benefit $471,680)