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This question is a part of BIF's Special Webinar series which was created to help students affected by the July 2020 CFP® Exam postponement to September 2020.
Each of the following statements about taking a Social Security retirement benefit are correct, except:
- A worker may choose to start receiving benefits as early as age 62 regardless of full retirement age.
- If taken early, Social Security retirement benefits are reduced 5/9 of 1% for each month, up to a maximum of 36 months.
- The total reduction to one’s Social Security benefit if taken four years early would be 20%.
- By delaying retirement beyond full retirement age, one’s Social Security base can grow 8.0% per year up to age 70.
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Correct answer: C. The total reduction to one’s Social Security benefit if taken four years early would be 20%.
Instructor insight:
The total reduction for retiring four years early would be 25%.
Benefits are reduced 5/9 of 1% for each month of early retirement, up to a maximum of 36 months. A further reduction applies for each month over 36 months at the rate of 5/12 of 1% per month. Therefore, retirement benefits will be reduced by 20% over the first three years (5/9 x 36), followed by a further reduction of 5% in the fourth year (5/12 x 12). The total reduction for retiring four years early would be 25%.
CFP® Exam insight:
Although Social Security retirement benefits that are accessed early will be reduced in relation to one’s primary insurance amount (PIA) at full retirement age (FRA), the reduced benefit will adjust annually with a cost of living adjustment (COLA). This allows the benefit to keep pace with inflation as measured by the Consumer Price Index (CPI).
