What are "actuarial reductions" in Social Security?

Actuarial Reductions are the factors applied to a benefit received before FRA is reached.

Social Security has a "Full Retirement Age" (FRA) for collecting unadjusted Social Security Retirement Benefits.  For years, age 65 was the FRA, but Congress changed the law to help with Social Security solvency issues. The FRA for individuals born between 1938 and 1942 was increased by two months for each year in that range. For those born between 1943 and 1954, FRA was moved to 66 years.  Similar increases will be phased in until the ultimate FRA is 67 years for anyone born in 1960 or later. 

Actuarial Reductions, then, are the factors applied to a benefit received before FRA is reached. In the case of early retirement, a benefit is reduced by 5/9 or one percent for each month before retirement for up to 36 months.  If the number is greater than 36 months,  then the benefit is reduced by 5/12 of one percent per month.  

On the other side of FRA, the Delayed Retirement Credits (DRCs) are an 8% increase per year.  

Note that individuals who elect early and then suspend benefits upon reaching FRA, the DRCs are based on the benefit amount received prior to suspension, not based on the Primary Insurance Amount (PIA) at Full Retirement Age (FRA). 

For an actuarial reduction example, an individual claiming at the age of 62 with an FRA of 67 and a PIA of $2,200, the calculation would be:

1 - [36(5/9) + 24(5/12)] = 70% of the PIA, or $1,540.  

Reduction/Credit by Election Age
Age Factor 
62 70.00%
63 75.00%
64 80.00%
65 86.66%
66 93.33%
67 100.00%
68 108.00%
69 116.00%
70 124.00%