Why Taking Social Security Early Takes a Permanent Toll on Your Monthly Check

In this video from theMotley Fool Answerspodcast,Alison Southwick and Robert Brokamp welcome Sean Gates to the show as they answer listener questions.

This listener wants to know more about the country's biggest entitlement program and how it works. The age you are when you start collecting Social Security sets the baseline for all of your future payments (with one minor caveat), and the earlier you start, the lower that monthly check will be.

A full transcript follows the video.

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Alison Southwick:All right, next question. It comes from [Cheryl]. "I started collecting Social Security retirement benefits early because I needed the money. My pay just wasn't enough. When I turn 65 this year, does my Social Security benefit automatically go up, because I'm full age?"

Robert Brokamp:She's talking about what is known as the "full retirement age". It used to be 65. It then was moved up to age 66 for anyone born between 1943 and 1954, and then for other folks, it gradually moves up to 67 for anyone born in 1960 or later. So she's actually not reaching full retirement age. She might be confusing it with Medicare. Medicare is available to anyone who's 65, regardless of when you were born.

But the answer to her question is no, because when you take Social Security early, you basically have locked in a lower benefit, so it's not going to go up. It might go up if she's earning enough money to have the benefit adjusted, and what I mean by that is your Social Security benefit is based on [the] 35 years in which you earn the most money. If she's still working now and her last year's income was among those highest 35 years, it can adjust her benefit upward in the following year, but that's the only way that will be adjusted.

Sean Gates:The only other thing is you can really put your money on the COLA, or the cost of living adjustment. That has been virtually zero in the last couple of years. If it makes you feel any better, I probably won't be able to claim Social Security until I'm 75, so I can commiserate.

Brokamp:Is that your projection for where the age will be by the time you get there?

Gates:Yeah, that's correct.

Brokamp:I would definitely say that certainly younger folks in your 30s ...


Brokamp:... should probably expect the retirement age to go up by the time they get there.

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