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  • Writer's pictureChris Stein, CFP®

The Cost of Claiming Social Security Early

We have talked on previous posts about the dollar benefit reduction if you file for Social Security before your full retirement age (FRA), but the costs of claiming Social Security early go well beyond just the basic benefit itself.  The additionally significant affect is a loss of flexibility: flexibility in filing strategies and flexibility in employment.  Here is a list of the other things to consider if you intend to file early:

  1.  Social Security must pay you the maximum benefit for which you are entitled if you file before FRA.  This sounds like a good thing, but some strategies include taking a lower benefit now in exchange for a much higher benefit later.  You cannot implement these strategies if filing early.

  2. You are permanently reducing your benefits, including Survivor benefits for your spouse.  If both spouses have their own benefit the surviving spouse only keeps one if the other dies.   Consider if your spouse can survive on your lower benefit since they will only be able to keep one benefit.

  3. You are exposed to the Earnings Test that will reduce your benefit if you earn more than a specific ($15,720 in 2016) amount each year before your FRA.  Once you reach FRA you can earn as much as you want without it affecting your benefit (it may cause a taxation issue, though).

  4. Since you are not eligible in most cases for Medicare until age 65, you should consider what you will do for medical insurance and other medical costs if you are retired before age 65.  These medical costs can be substantial.

These are just a few of the major reasons to seriously consider any plan to file for Social Security before your Full Retirement Age.  It may make sense, but due to the difficult nature of changing your mind after the fact, be sure this is the plan you wish to pursue.

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