Early Social Security Disbursement: An FAQ

As a result of the COVID-19 outbreak, the American Booksellers Association has heard from members all around the country who are struggling financially, including those who are near retirement age (between the ages of 62 and 70). If you are in this age group, you may be considering how early Social Security retirement benefits might play a role in easing your current financial uncertainty.

In response to member inquiries following a New York Times article on Social Security, ABA’s Advocacy team reached out to Russell Gloor at the Association of Mature American Citizens (AMAC) Foundation, who has a wealth of knowledge in regards to Social Security. The following information pulls heavily from information provided by Gloor and the previously mentioned New York Times article.

Note: The decision to claim Social Security retirement benefits early is a personal decision. There is no one-size-fits-all approach. Carefully review your financial situation and consider consulting with a financial advisor before making a decision, as a delay in claiming Social Security retirement benefits can substantially increase your retirement income.

When am I eligible for Social Security retirement benefits?

You become entitled to full (unreduced) Social Security retirement benefits at full retirement age. Your full retirement age varies depending on the year in which you were born. Find your full retirement age here. Regardless of your full retirement age, you may start receiving benefits as early as age 62 or as late as age 70.

Will my benefits be reduced if I claim Social Security retirement benefits before my full retirement age?

Yes. If you start taking your Social Security retirement benefits before your full retirement age, your benefits are reduced for each month before your full retirement age. In other words, your annual benefit will be higher for every year you wait, until age 70. Filing before your full retirement age can decrease your benefits by as much as 6.7 percent annually. The maximum reduction at age 62 will be 25 percent for those who reached age 62 in 2013 and 30 percent for those born after 1959.

For example, if you were born 1957, your full retirement age is 66 and 6 months. An estimated monthly benefit of $1000 at full retirement age would be reduced to $725, by 27.50 percent. You can select your year of birth to find out how much your benefit will be reduced if you retire between age 62 and full retirement age.

Inversely, claiming Social Security retirement benefits after your full retirement age results in a larger benefit: an 8 percent increase for every 12 months of delay up to age 70.

If I choose to take Social Security retirement benefits before full retirement age, how can I maximize my lifetime benefits?

If you are considering claiming Social Security retirement benefits before full retirement age due to short-term COVID-19-induced financial hardship, you have the option to claim benefits now and then suspend them once you reach full retirement age. If you do this, you will accrue delayed retirement credits.

Keep in mind that claiming Social Security retirement benefits early, even if you then later suspend them, will still reduce your lifetime benefits. For example, if you claim early at age 62 with a full retirement age of 67, you will get a benefit 30 percent less than you would get at age 67; that reduction will stay in place even if you later suspend your benefits at full retirement age and subsequently earn delayed retirement credits until age 70. While your age 70 benefit will be more than your age 62 benefit, the increase will be considerably less than it would have been if you did not take your benefits early.

Additionally, if you are still working, you need to consider Social Security’s earnings test (see section below).

Are there other consequences to suspending Social Security retirement benefits?

Yes. Suspending Social Security retirement benefits at your full retirement age also means that the benefits anyone else (such as a spouse or dependent child) is collecting on that record would also be suspended. In other words, suspending your Social Security retirement benefit at full retirement age also suspends benefits for anyone else collecting benefits on your record. This could be the case if the Social Security retirement benefit taken early results in a spousal benefit being paid to a spouse, or a dependent child benefit to be paid, only to have those benefits cease when the Social Security retirement benefit is suspended.

Can I suspend spousal and survivor benefits as well as retirement benefits?

No. The option to suspend benefits applies only to Social Security retirement benefits that are based on your work record. It would not apply to either spousal or survivor benefits.

For example, a widow who is waiting until her full retirement age to claim 100 percent of her survivor benefit cannot, instead, claim a reduced survivor benefit earlier and then suspend benefits at her full retirement age and expect a larger survivor benefit later.

Can I claim Social Security retirement benefits before my full retirement age while I am still working?

Yes, but you will be subject to a Social Security earnings test. This earnings test sets a limit on how much you can earn before Social Security takes back some of your benefits.

If you are under full retirement age for the entire year, the Social Security Administration will deduct $1 from your benefit payments for every $2 you earn above the annual limit of $18,240 for 2020. If your benefits are withheld because you exceed the earnings limit, you will see a benefit increase when you reach full retirement age; however, it will take many years (up to 15) to recover any benefits withheld due to exceeding the earnings limit while collecting early benefits.

If you will reach full retirement age in 2020, the annual limit on your earnings for the months before full retirement age is $48,600 for 2020. In those months before you reach full retirement age, the Social Security Administration will deduct $1 from your benefit payments for every $3 you earn above the annual limit of $48,600. Starting with the month you reach full retirement age, your earnings no longer reduce your benefits, regardless of how much you earn.

In summary, there are a number of complications you must consider when deciding to claim Social Security retirement benefits before full retirement age. The right choice is dependent upon your individual circumstances.

If you have Social Security-related questions, you can contact the AMAC Foundation’s Social Security Advisory Service at [email protected], or 1-888-750-2622.