Reduction months are an important part of how Social Security benefits are calculated for individuals who retire early. In this article, we’ll define the term “reduction months” and explain their impact on monthly Social Security payouts.
In the context of Social Security benefits, reduction months are a number of months beginning with the first month an individual is entitled to reduced benefits, up to but not including the month in which they reach their full retirement age.
Reduction months are a concept relevant to the age at which a person begins to take Social Security retirement benefits. Individuals who qualify for Social Security retirement benefits are entitled to begin taking benefits as early as age 62. However, they are not considered to reach “full retirement age” until age 66 to 67, depending on their birth year.
If a worker takes retirement benefits prior to full retirement age, their monthly benefit will be permanently reduced. The exact amount by which the benefit is reduced is calculated based on reduction months. For each reduction month, retirement benefits will be reduced by a small fraction of a percent.
The table below illustrates by how much Social Security retirement benefits are reduced for workers who begin taking benefits at age 62. Note that this table is based on an example primary insurance amount of $1,000 per month.
|Birth year||Full retirement age||Number of reduction months||Percent reduction||Benefit amount (reduced from $1,000)|
|1943 - 1954||66||48||25%||$750|
|1955||66 and 2 months||50||25.83%||$741|
|1956||66 and 4 months||52||26.67%||$733|
|1957||66 and 6 months||54||27.5%||$725|
|1958||66 and 8 months||56||28.33%||$716|
|1959||66 and 10 months||58||29.17%||$708|
|1960 and later||67||60||30%||$700|
As you can see in the table, taking retirement benefits early results in a substantial reduction in monthly benefits. For a person born in 1960 or later, taking retirement benefits at age 62 can reduce monthly benefits from $1,000 per month to $700 per month.
Because of the impact of taking Social Security retirement benefits early, it’s important for retirees to plan retirement carefully and begin taking benefits later, if possible. Working with a Social Security professional like a financial planner can be incredibly helpful for determining at what age it is wisest for you to begin taking Social Security benefits.