Social Security benefits can be reduced if entitlement begins before reaching full retirement age.
The reductions are different for old-age, spouse, and widow/widower benefits. In this post, we’ll explain how the Social Security Administration (SSA) reduces these benefits and provide examples to help you understand the calculations.
- Old-Age Benefits Reduction
The SSA reduces old-age benefits based on the number of months of entitlement before full retirement age. For the first 36 months, the reduction is 5/9 of 1% per month, and for each additional month, it is 5/12 of 1%.
Example: Alex’s full retirement age is 65 years and 8 months, but she starts receiving benefits at age 62. Her primary insurance amount is $980.50. Her benefits are reduced by $228.80, resulting in a monthly benefit of $751.70.
- Spouse’s Benefits Reduction
Spouse’s benefits are first reduced (if necessary) for the family maximum, then based on the number of months of entitlement before full retirement age. The reduction is 25/36 of 1% for the first 36 months and 5/12 of 1% for each additional month.
Example: Sam is entitled to old-age benefits, and his spouse Ashley starts receiving benefits at age 63. Her full retirement age is 65 years and 4 months. Ashley’s benefit is reduced by $80.20, resulting in a monthly benefit of $332.20.
- Widow’s or Widower’s Benefits Reduction
Widow’s or widower’s benefits can be reduced based on age or disability. Both types are reduced if entitlement begins before full retirement age.
a. Widow’s or Widower’s Benefits Based on Age
These benefits are reduced based on the number of months of entitlement before full retirement age.
Example: Ms. Bogle’s unreduced widow benefit is $785.70, starting at age 64. Her full retirement age is 65 years and 4 months. Her benefit is reduced by $56.00, resulting in a monthly benefit of $729.70.
b. Widow’s or Widower’s Benefits Based on Disability
For months after December 1983, these benefits are not reduced for months of entitlement prior to age 60. For months from January 1973 through December 1983, an additional reduction applies. For months prior to January 1973, benefits are reduced only for months of entitlement before age 62.
- Benefit Reduction Adjustments
The SSA may adjust the reduction computed for certain months of entitlement before full retirement age, as provided in § 404.412.
- Effect on Widow’s or Widower’s Benefits if the Deceased Worker Was Entitled to Old-Age Benefits
If the deceased individual was entitled to old-age benefits, special rules in § 404.338 may affect reduced widow’s or widower’s benefits.
Example: Reduced Old-Age Benefits
Let’s consider Jane, who was born in September 1957. Her full retirement age for Social Security benefits is 66 years and 6 months. Jane’s primary insurance amount (PIA), which is the monthly benefit she would receive at full retirement age, is $1,200.
Jane decides to start receiving her benefits early, at age 64. This means she is starting her benefits 30 months (2 years and 6 months) before her full retirement age. To calculate the reduction in her benefits, we need to determine the reduction amount for each month.
For the first 36 months, the reduction is 5/9 of 1% per month. Since Jane’s benefits start 30 months early, which is within the first 36 months, we use this reduction rate:
Reduction per month = $1,200 * (5/9) * 0.01 = $8.33
Total reduction for 30 months = $8.33 * 30 = $249.90
Now, we need to subtract the total reduction from Jane’s PIA to find her reduced monthly benefit:
Reduced monthly benefit = $1,200 – $249.90 = $950.10
So, if Jane starts receiving her Social Security benefits at age 64, her monthly benefit will be approximately $950.10 instead of $1,200, which she would have received if she had waited until her full retirement age.
Conclusion: Understanding how the SSA reduces benefits before full retirement age is crucial for making informed decisions about when to start receiving benefits. Be sure to consider the implications of starting benefits early and consult with a financial professional if necessary.
https://www.ssa.gov/OP_Home/cfr20/404/404-0410.htm
At Hugo Fierro & Michael Perez, we pride ourselves on our extensive expertise in providing guidance and support for individuals seeking to understand the intricate nuances of their Social Security disability claim. Our team possesses the necessary knowledge and experience to assist clients in navigating the complexities of the process, ensuring that they receive the assistance they need to achieve their goals.