Why are retirement benefits reduced at age 62?

First, a little history - When Social Security started, the only benefits payable were for retired workers who had reached age 65.

The first monthly payment was issued in January 1940 to a retired legal secretary named Ida May Fuller. She worked 3 years under Social Security before retiring at age 65. Her first check was $22.54 and she continued to receive benefits until she died at 100 years of age.

Miss Fuller's longevity was very unusual at the time, but is much more common now. According to the Social Security Administration's 2007 Annual Statistical Supplement, there were 43,100 centenarians receiving benefits in 2006.

In 1956, the law was changed to allow women to receive early retirement at age 62 and this was extended to men in 1961. Since these early retirees could be expected to receive benefits over a longer period of time than someone who first applied at age 65, the monthly rate was actuarily reduced to ensure that on average the lifetime benefits paid would be about the same.

Of course, no one knows how long they will live and taking early retirement at 62 will result in permanent reduction of your benefits ranging from 25% to 30% depending on your year of birth (see chart). So deciding whether to retire early or wait until your full retirement age (FRA) or later is probably the most important decision you will make to ensure an adequate income in your later years!

Some things to consider:

• Women live about 3 years longer than men
• Your health and family history may affect your longevity
• The value of your other retirement income may not keep pace with inflation and you may be more dependent on Social Security income as you age
• Health care expenses tend to rise as you age

If you live longer than the average life expectancy for your age group, you will receive a higher monthly benefit and more benefits over your lifetime if you wait until your FRA or later to start your Social Security checks.

If you take reduced early retirement benefits, the benefits payable to your widow or widower when you die may be less than if you had waited until your FRA or later to start your Social Securty checks.