A Hidden Social Security Penalty

By on March 18, 2013

Nearly three out of four Americans start their Social Security retirement benefits at age 62. What many people don’t realize is that there is a hidden penalty for some retirees who can’t resist early-bird Social Security benefits. Younger Baby Boomers will have to absorb a greater financial hit for claiming benefits at age 62 than older retirees. Here’s why:  while the earliest eligibility age has remained at age 62, the age when Americans can claim their full retirement benefits has increased. For people who were born in the years from 1943 to 1954, the full retirement age is 66. Americans who were born in 1960 or later won’t qualify for full retirement benefits until they are 67. Someone who was born in 1960 and retires at 62 will have taken benefits five years – or 60 months – early. Every month shy of full retirement age will reduce this person’s benefit.  In comparison, someone born in 1954 who retires at 62 will have four years – or 48 months – worth of benefits deducted.  The penalty for the older retiree isn’t as severe.

Social Security Full Retirement Eligibility

Birth Year                                 Full Retirement Age

  • 1943 – 1954                                    66
  • 1955                                                66 and 2 months
  • 1956                                                66 and 4 months
  • 1957                                                66 and 6 months
  • 1958                                                66 and 8 months
  • 1959                                                66 and 10 months
  • 1960 and later                               67

According to the Social Security Administration, older Baby Boomers who start taking their benefits at age 62 will experience a lifetime reduction of 25% in monthly payments compared to their peers who wait for full retirement. For younger Baby Boomers, who were born in 1960 or later, the penalty increases to 30%.

Social Security Retirement Penalty by Age

Of course, Americans can claim benefits at any point between 62 and 70 years of age when the payoff for waiting disappears. Let’s see how much the benefits will shrink for each year a person born in 1960 or later takes benefits before full retirement. Starting age            Approximate Social Security Reduction

  • 63                                25%
  • 64                                20%
  • 65                                13.3%
  • 66                                6.7%

Bottom Line:

While it makes sense for some Americans to take Social Security early, many individuals would be better off postponing their benefits to full retirement age or later.


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