What is the full retirement age for Social Security, & why is it important?

As you approach retirement and think about when you'll collect your Social Security benefits, it's important to understand how your age comes into play.

Specifically, you need to know what your full retirement age (FRA) is and how the amount of your benefit can change depending on how old you are when you start to claim it. Timing your benefits right for your situation will allow you to get the most from your retirement income and leave a legacy for your loved ones and the causes you care about.

Your full retirement age for Social Security is the point at which you can claim your full standard retirement benefit. It's not the same age for everyone. It depends on when you were born.

If you were born between 1943 and 1954, your FRA is 66. For each birth year from 1955 to 1959, add two more months. (For example, if you were born in 1956, then your FRA is 66 and 4 months.) The full retirement is 67 for anyone born in 1960 or later.

The Social Security full retirement age was initially set at 65, but people are living and working longer now. The graduated scale we have now was established by Congress in 1983 as part of a larger reform meant to address the financial strain on the Social Security program. Congress could decide to increase FRA again depending on how conditions may change.

Each participant is entitled to receive a standard Social Security benefit based on their earnings record. If you begin collecting payments at your full retirement age, then you will receive your standard amount, called your primary insurance amount.

You don't have to claim your benefit at your FRA. You can file before or wait until after your full retirement age. This timing decision can have a dramatic impact on the total amount of benefits you receive.

The earliest you can claim Social Security retirement benefits is 62. However, if you begin receiving benefits before your full retirement age, then your benefit is reduced. The earlier you file, the larger the reduction. For every month before your full retirement age, your benefit is reduced by five-ninths of 1% (about 0.56%) for up to 36 months. Each additional month after that means a reduction of five-twelfths of 1% (about 0.42%).

For example, let's say your FRA benefit is $2,000 per month.

• If you file nine months early, your benefit will be 5% less than your primary insurance amount, or $1,900.
• If you file three years early, your benefit will be 20% less than your primary insurance amount, or $1,600.
• If you file four years early, your benefit will be reduced by 25% to $1,500.

Waiting until after you reach your full retirement age to file for Social Security benefits results in credits that increase your benefit by two-thirds of 1% for each month you wait. It adds up to 8% per year. You can earn delayed credits until you turn 70. After that, delayed credits no longer accrue, and there's no benefit in waiting.

For example, let's say your FRA benefit is $2,000 per month.

• If you wait an extra year to claim, your benefit would be $2,160.
• Waiting 18 months would increase your benefit by 12% to $2,240.
• After delaying for two years, your benefit would increase by 16% to $2,320.

You may continue to work after you reach your full retirement age. Doing so can affect your benefits, so it's important to understand how. There are a lot of misconceptions about the impact of working past your retirement age.

• First, understand that your benefit calculation is based on your earnings record. The formula uses your highest 35 years of earnings regardless of which years they are. If one of your 35 highest earning years occurs after you reach full retirement age, it is still used. That's true regardless of whether you've already begun receiving benefits. If you continue working after your benefits begin, your benefit will update to reflect your new earnings.
• You may have heard that working while receiving benefits may result in a reduction due to the earnings limit. While that is true if you receive your benefits before FRA, the earnings limit no longer applies once you reach your full retirement age. Starting in the month you reach your FRA, your benefit will not be reduced regardless of how much money you make.

Although it's not related to your FRA, understand there may be a significant tax impact if you work while collecting benefits. That's because the portion of your benefit that you must include in your taxable income depends on your combined income. The more income you have, the more your benefit becomes taxable.

Building a successful retirement takes thoughtful decision-making, including when to take your Social Security benefits. You don't have to go it alone. Consulting with a Thrivent financial advisor can help you create the best strategy for you.