Advanced Diploma of Financial Planning (ADFP) Practice Test

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What occurs when a worker takes early retirement benefits from Social Security?

The worker permanently loses all benefits
The worker receives a higher benefit amount
The benefits are not reduced
The benefits are reduced

The correct answer is: The benefits are reduced

When a worker takes early retirement benefits from Social Security, the benefits are reduced to account for the fact that the individual will be receiving them for a longer period of time. Social Security is designed to provide a steady income in retirement, but if individuals choose to start receiving their benefits before reaching full retirement age, the amount they receive each month will be lower than what they would receive if they waited until full retirement age. The reduction is calculated based on how many months before full retirement age the individual starts to receive benefits. This is a key aspect of the Social Security system, which aims to ensure that individuals who retire early do not deplete the fund too quickly. Therefore, it's important to understand that while early retirement offers access to benefits sooner, it comes with the trade-off of receiving a lower benefit amount throughout retirement.