Working people of all ages know that Social Security exists because you can’t help but notice the huge bite that it takes out of your paycheck every couple of weeks. But as your retirement years start to come into clearer focus Social Security becomes much more immediately relevant. While it is true that few people are going to be able to enjoy a robust retirement on Social Security alone it can certainly give you a boost.
Most people are aware of the fact that the amount that you receive is based on the amount that you earned throughout your life and in turn the amount you contributed to the Social Security system. But when you choose to start receiving benefits also impacts the amount that you will receive.
What is considered to be “full retirement age” for the purposes of Social Security varies depending on the year that you were born. If you were born between 1943 and 1954 full retirement comes at age 66. But if you were to put off retirement until age 70 you could receive delayed retirement credits at a rate of 8% per year beyond your full retirement age, so the total increase would be 32%. However, on the other side of the spectrum you could choose to take your Social Security benefits at age 62 and receive a reduced benefit. The percentage that you would lose over your lifetime varies according to the year you were born as well, but using the same 1943 to 1954 example your benefit would be reduced by 25%.
Changes made by the Social Security Administration on December 8th of 2010 put an end to an interesting opportunity that some people were taking advantage of. It was previously possible to accept your reduced benefit at the age of 62, receive payments until you were 70 years of age and then pay them back and reapply for your full benefit. You could invest the reduced payments over that eight year span and use this capital to generate earnings before you paid back the money. The new rule makes this no longer possible as it allows for just a single application withdrawal that must take place within 12 months of the original filing for benefits.