Under 60? Your Social Security Checks Will Be Smaller Than You Think

About 38 million Americans now rely on Social Security benefits after they retire, and with growing numbers of baby boomers adding their names to the rolls of Social Security recipients, that number is only going to increase in the years to come. But if you're younger than 60, there's something you need to know about your Social Security benefits -- especially if you were counting on retiring at a certain age.

Many people think of age 65 as the natural time to retire, with early retirees often aiming for age 62. Yet even though Social Security benefits are available to Americans as early as their 62nd birthday, coming changes to the official full retirement age will mean bigger reductions in benefits for early retirees and longer waits for those seeking the full amount of benefits they're entitled to get.

Pushing Retirement Back

For those born from 1943 to 1954, the officially sanctioned full retirement age -- when retirees can apply for Social Security and get the full calculated amount of their monthly benefits -- is 66. Wait beyond your full retirement age, and many Social Security recipients can get money added to their monthly checks. Begin taking benefits early, and you'll take a hit to the amount you receive.

But beginning for those born in 1955, who will be eligible to apply for benefits as early as 2017, the full retirement age will start going up. For today's 59-year-olds, the official full retirement age will be 66 and two months, and for every year after that, the age will go up by another two months until it hits 67 for those born in 1960 and later.

Raising the full retirement age acknowledges lengthening lifespans and reflects a greater willingness among American workers to work longer. But it also has a financial impact on Social Security recipients regardless of when they start collecting benefits.

Watching the Numbers Fall

A rising full retirement age hits workers by increasing the penalty they take for claiming early benefits. For those entitled to full benefits at age 67, claiming Social Security at age 62 incurs 60 months' worth of penalties -- rather than 48 months for current retirees with a full retirement age of 66.

Right now, those retiring at age 62 take a 25 percent haircut off the benefits they would receive if they waited until age 66. But once the retirement age goes up, the amount of the decrease will get bigger, with the Social Security Administration lopping off 30 percent from the monthly benefit for those currently younger than age 55.

The same thing happens for those who expect to wait beyond full retirement age to collect their Social Security benefits. Currently, if you wait until age 70, you get four years of what are known as delayed retirement credits, which boost your monthly benefit amount by 8 percent per year for a maximum of 32 percent. But when the full retirement age goes up to 67, the maximum available boost will be three years, or 24 percent.

Those expecting to receive spousal benefits also have to be aware of potential reductions in what they'll receive from Social Security. The current 30 percent reduction to spousal benefits at age 62 will become a maximum 35 percent cut once the full retirement age hits 67.

What Can You Do?

Unfortunately, there's little that Americans can do about the planned increase in the full retirement age for Social Security benefits. The legislation that enacted the increase became law back in 1983, when the retirement age was 65. Nothing happened under that legislation to change the retirement age until 2000, when it started its rise (now already completed) from 65 to 66.

Nevertheless, knowing that your benefits will be correspondingly lower than that of today's current retirees gives you some options to change your future strategy. By working longer, you'll avoid the benefits reductions that those with no choice but to claim Social Security at their first opportunity will have to accept in order to retire.

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