newsfeedback@fool.com
(Kailey Fralick)
Apr 13,
2019
Social
Security is a guaranteed source of income in retirement, and it can ease the
burden on your personal retirement savings, helping you stretch your dollars
further. But the amount you receive depends on several factors, including when
you begin claiming benefits and how much you earned during your years in the
workforce. It's important to understand how these pieces all fit together or
you could make a mistake that costs you tens of thousands of dollars in Social
Security benefits over your lifetime. Here are three big Social Security faux
pas you don't want to make.
1. Working less than 35 years
Your
Social Security benefit is based on your average monthly income during your 35
highest-earning years, with adjustments for inflation. If you haven't worked
for at least 35 years, the Social Security Administration (SSA) will add zeros
to your calculations, and this will reduce how much you're entitled to. If
you've worked less than 10 years, you might not be eligible for Social Security
retirement benefits at all.
Image
source: Getty Images.
It's
worth noting that these years don't have to be consecutive. The SSA uses a
credit-based system to determine Social Security eligibility. In 2019, you earn
one credit for every $1,360 you make, with a maximum of four credits per year.
You need 40 credits (10 years) to be eligible for Social Security.
2. Not checking your earnings record
Everyone
should create a My Social Security account with the SSA.
This will give you an idea of how much to expect from Social Security if you
start taking it at different ages, and you can also view a copy of your
earnings record. It's important that you check this information every year to
be sure it's accurate because this is what your benefit is based on.
If the
SSA has the wrong information, it could underestimate your average monthly
earnings, which means you'll get a smaller check than you deserve. There isn't
anything you can do about it either, unless you have the tax documents to prove
how much you actually earned. This is why you shouldn't throw out any of
your tax paperwork unless
you're confident that the government has your correct earnings for that year
recorded. If you find an error, fill out a Request
for Correction of Earnings Record and submit this to the SSA,
and then check your Social Security account to make sure the record is updated.
3. Claiming Social Security too early
It can
make sense to claim Social Security early if you have a terminal illness or if
you cannot survive without the money, but if you expect to live a reasonably
long life, it's usually not in your best interests to start claiming as soon as
you're eligible at 62. You aren't entitled to your full scheduled benefit per
check until you reach your full retirement age,
which is currently 66 or 67, depending on when you were born. For every month
you take benefits before this age, your checks will decrease. If you start at
62, you'll only receive 70% of your scheduled benefit per check if your full
retirement age is 67, or 75% if your full retirement age is 66.
But
this works the other way, too. You can delay retirement benefits past your full
retirement age and your checks will increase for every month you wait until you
reach your maximum benefit at age 70. This is 124% of your scheduled benefit if
your full retirement age is 67, or 132% if your full retirement age is 66.
It's
difficult to know the best age to start Social Security because
you can never be sure how long you'll live. But you can estimate how much you
would get if you started at different ages. First, estimate your life
expectancy based on your personal and family health history. When in doubt,
it's best to figure on the high side. One in 4 65-year-olds today will live
past 90, according to the SSA, and 1 in 10 will live past 95.
Then,
use your benefit estimates in your Social Security account to help you
determine how much you'd get each month if you started benefits at different
ages. Multiply each of these amounts by 12 to get your estimated annual
benefits and then multiply these numbers by the number of years you expect to
receive Social Security to get your estimated lifetime benefits. For example,
if you expect to live to 87 and you're entitled to $1,000 per month at your
full retirement age of 67, you'd multiply $1,000 by 12 to get an annual benefit
of $12,000 and then multiply this by 20 years to get an estimated lifetime
benefit of $240,000.
Social
Security won't cover all your expenses in retirement, but it can take a bit of
pressure off your personal retirement savings, especially if you avoid the
above mistakes.
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