About to take Social Security? Read this first

You can decide to start your Social Security retirement benefit at any time after age 62, but there are a few things you should know first. In order to make the best decision for yourself and your family, you need to know how much money you can expect at different ages, whether it might be smarter to delay benefits, and what you can do if you change your mind about your decision to claim Social Security.

How much will your Social Security retirement benefit be?

One of the most important things to know before you claim Social Security is how big you can expect your retirement benefit to be.

The Social Security Administration calculates your retirement benefits by examining your earnings from every year you worked up to the maximum taxable amount for Social Security, indexing the amounts for inflation, and then taking an average of the 35 highest-earning years. For example, say you earned $40,000 in 1994. The inflation multiplier for this year is 1.94, so a total income of $77,600 would be used for this year when computing your 35-year average.

The average is then divided by 12 to arrive at your average monthly Social Security earnings. Then your monthly retirement benefit is found by adding up the following:

  • 90% of the first $856 of your average monthly Social Security earnings

  • 32% of earnings from $856 to $5,157

  • 15% of earnings beyond $5,157

For example, if your average indexed monthly earnings are $3,000, then you would calculate your retirement benefit as follows:

(90% of $856) + (32% of $2,144) = $770.40 + $686.08 = $1,456.48

The Social Security Administration publishes a worksheet that can help you calculate your benefit, and you can find out how much you earned each year by creating an account on the SSA's website and viewing your earnings history.

Early or late retirement

The method I just discussed calculates your Social Security benefit if you retire at full retirement age. Depending on the year you were born, your full retirement age will be somewhere between 66 and 67:

Year You Were Born

Your Full Retirement Age

1954 or earlier

66 years


66 years, 2 months


66 years, 4 months


66 years, 6 months


66 years, 8 months


66 years, 10 months

1960 or later

67 years

Source: Social Security Administration.

Regardless of your full retirement age, you can choose to claim your benefit as early as age 62 or as late as age 70. Keep in mind that your benefit will be permanently reduced if you retire before your full retirement age, and it will be permanently increased if you retire later.

Here's how much your benefit will change based on how early or late you claim Social Security:

If you retire...

Change in Benefit per Year

Change in Benefit per Month

Early, up to 36 months


(5/9 of 1%)

Early, beyond 36 months


(5/12 of 1%)

Late, up to age 70


(2/3 of 1%)

Source: Social Security Administration.

As an example, let's say that your full retirement age is 67 and you decide to take your benefit at 63. Because this is four years early, your benefit would be permanently reduced by 6.67% for the first three years and an additional 5% for the fourth -- a total permanent reduction of 25%. Think about this before you decide to claim early.

What if you change your mind later?

If you claim Social Security and later regret doing so, then you may be able to reverse your decision. The Social Security Administration gives early filers the ability to withdraw their application within one year of claiming a benefit.

This do-over can only be used once, and to use it, you'll need to pay back any money you've received from Social Security. If anyone else (such as a spouse or dependent) also draws a benefit on your work record, then he or she will need to agree to the withdrawal, as it will eliminate their ability to collect a benefit as well.

If you want more information about what to do if you change your mind, here's a great discussion by my colleague Todd Campbell.

What's the future of Social Security?

You may have heard that Social Security isn't in the best financial shape, and that's true. While Social Security has nearly $3 trillion in cash reserves right now, the system is expected to start running at a deficit in a few years, and its spare cash is projected to run out in 2034. After this time, there will be enough money flowing in from tax revenue to cover about three-quarters of promised benefits.

The point is that something will need to change to fix the system, and it will likely take one of two forms: benefit cuts or tax increases. Benefit cuts are widely unpopular, and the majority of Americans of all income levels, age groups, and political affiliations are in favor or preserving Social Security benefits, even if it means increasing taxes. So don't be surprised if the payroll tax or Social Security tax wage limit increases in the coming years.

You can read more about the potential ways to fix Social Security here, but the bottom line is that something is likely to change within the next several years.

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