How Are Reduced Benefits Calculated?

May 25 2017 - 8:11am

A friend of mine started receiving his social security benefit in August 2016. His 64th birthday was in December 2016, and he receives about $750 a month. He told me that someone said he would have received just as much if he had started his check in January 2016, because the payment is computed as of the end of the previous year. Is this true? I know that this is true for delayed retirement credits but that it is temporary. I know that, in the case of DRCs, eventually the full amount will appear in the monthly check, after it is computed at the end of the following year. But I didn't realize that this might also be true of benefits started before full retirement age. I told him that he might eventually start receiving the additional amount for January through August, in a later year. But now I am not sure that I gave him the correct information, because it might be that only DRCs get computed at the end of the previous year and get paid only later after another year or two goes by. Is he already receiving the full amount, or will he be receiving the full amount at some later time? I hope my question is clear. Please let me know what you think.
Thank you,
K

Hi K,

When you file for benefits prior to full retirement age (FRA), the reduction in your benefit rate is calculated based on the actual month that you become entitled to benefits. In the case of retirement benefits, the reduction percentage is 5/9ths of 1% per month for the first 36 months of reduction, and 5/12ths of 1% for each additional reduction month.

So, the rumor that your friend heard is not true. If he had filed for benefits effective with January 2016 instead of August 2016, his monthly benefit rate would have been about 3.9% lower (i.e. 5/9ths of 1% x 7 months).

Best, Jerry