Liz Weston: Starting Social Security early results in a permanent benefit reduction

Dear Liz: I’m confused by your answer to the question about starting Social Security too early. You wrote that someone who decides they made a mistake can suspend the benefit once they reach full retirement age.

From the description, it sounds like there is no penalty for this option, so everyone should do it! This sounds too good to be true, so I (and maybe others) might be misinterpreting this. It sounds like you get early benefits from 62 to full retirement age, then the full delayed benefit at 70.

Answer: Keep in mind that your Social Security benefit is permanently reduced when you start it early. The earlier you start, the bigger the reduction.

Social Security allows you to suspend your benefit once you’ve reached full retirement age (currently between age 66 to 67). While it’s suspended, your benefit will receive delayed retirement credits that will increase your checks by 8% each year until age 70. Your benefit also continues to receive cost of living adjustments, whether you’re currently receiving it or not.

A suspension can help you offset some of the reduction you incurred by starting early, but you’ll never get as much as if you’d waited until age 70 to apply.

Dear Liz: You recently wrote about online banks versus brick and mortar, but you missed one point in favor of local banks. If there is a major screw-up, you can go there and talk to a person. That’s better than being stuck in an endless phone loop or with an unhelpful “bot” online. And being face to face (pleasantly) is more likely to get help and sympathy.

Answer: Banks vary enormously in the quality of their service. Some online banks pride themselves on quickly connecting their customers to well-trained human representatives around the clock. Meanwhile, some local banks have indifferent staff and inconvenient hours.

But we can agree that chatbots — computer programs that purport to answer common customer questions — often provide a truly awful user experience. Any bank that refuses to connect you to a human being on request is a bank to be avoided.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to here at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at askliweston.com.

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