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Probably the most common decision facing new eligible social security recipients is whether or not to file for early benefits. The decision to either consume now or defer to the future is akin to an investment decision. And just as any investment decision requires a “risk-return” analysis, so too does the question of claiming early benefits. There may be more factors involved than just the receipt of a larger or smaller benefit amount. Below is an example of filing for early benefits with related questions and links to other pertinent Social Security areas.
Early Filing Example
Jerry, age 65, plans to retire soon and begin receiving Social Security retirement benefits. His Full Retirement Age is 67. His wife, Megan, age 63, is still working and does not plan to retire until she reaches 65. Jerry's Primary Insurance Amount (PIA) is $2,500 per month (amount he would receive at 67).
Q: Will Jerry face reductions in his benefits if he decides to start benefits now at age 65?
Yes. If Jerry does not wait until his Full Retirement Age (FRA) of 67, his Primary Insurance Amount (PIA) will be reduced (See IRS chart) .¹ For instance, if Jerry turns 67 in October of 2025 and files for early benefits in October of 2023, he would receive approximately $2,150 per month (24 months early – a 13.4% reduction in benefits)¹.
¹ Reduction applied to primary insurance amount ($2,500 in this example). The percentage reduction is 5/9 of 1% per month for the first 36 months and 5/12 of 1% for each additional month.
Q: Could there be penalties if Jerry decides to file early and then return to part-time or full-time employment?
Maybe. It depends on how much Jerry annually earns while receiving benefits. In addition to the early filing penalty, Jerry may also be subject to an earnings cap penalty because he continues to work before his full retirement age. Once he reaches his FRA, he can work as much as he wants without penalty.
Q: Other than receiving monthly income, are there any other early advantages to Jerry's filing?
There may be situations where Jerry's early filing could trigger his wife and possibly dependents to file for "auxiliary" benefits based on Jerry's work record. This decision could immediately improve monthly cash flow. Another situation that could make early filing attractive is if the individual's health is an issue and living to their life expectancy is doubtful.
Q What are some of the disadvantages of filing early for Jerry?
a) Once Jerry files for retirement benefits, he's "locked in" to that amount for life (he will receive annual Cost of Living Adjustments when provided). However, depending on his situation, Jerry may be able to switch to a higher survivor benefit later (See c below).
b) If Jerry returns to work before age 67 (his FRA), he may face an earnings penalty reduction in his benefits (no penalty once Jerry reaches 67).
c) If Jerry predeceases his wife, Megan, the available survivor benefit to Megan will be permanently reduced if Jerry claims early benefits. The amount available to Megan for survivor benefits is the amount Jerry received or was entitled to. If Jerry files early, the survivor benefit is locked-in, and Megan's benefit at Jerry's death would be the greater of her own retirement benefit or Jerry's survivor benefit.
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