Maurie Backman, The Motley Fool •September
7, 2019
Even if
you're not retiring in 2019, it still helps to read up on Social Security and learn what to expect from the
program. Here are a few key tips that will help you make the most of your
benefits.
1. Know your full retirement age
Your
Social Security benefits are calculated based on your earnings during your 35
highest-paid years on the job. You're then eligible to receive those benefits
in full once you reach full retirement age. That age isn't the same for everyone; it
varies based on your year of birth, as follows:
|
Year
of Birth
|
Full
Retirement Age
|
|
1943-1954
|
66
|
|
1955
|
66 and 2 months
|
|
1956
|
66 and 4 months
|
|
1957
|
66 and 6 months
|
|
1958
|
66 and 8 months
|
|
1959
|
66 and 10 months
|
|
1960
|
67
|
DATA
SOURCE: SOCIAL SECURITY ADMINISTRATION.
Though
you're allowed to claim Social Security as early as age 62 and as late as age
70, keeping the above age in mind is important to your filing decision.
2. Review your earnings record annually
Each
year, the Social Security Administration (SSA) issues you an earnings statement. If you're 60 or older, you'll get it in
the mail, and if not, you can access it on the SSA's website. It's
important to review that document annually for two reasons. First, because
it'll provide an estimate of what your benefits will look like once you reach
full retirement age. The closer you are to retirement, the more accurate that
estimate will be.
Secondly,
there's a chance your earnings statement could contain an error about your
income that works against you. For example, your statement one year might show
that you only earned $40,000 when, in fact, you earned $80,000. Correcting such
mistakes is crucial, because as stated earlier, your Social Security benefits
are determined based on your income history, and an error like that could cause
your benefits to go down needlessly.
3. Understand the drawbacks of filing early
The SSA
will allow you to start claiming benefits as early as age 62. But for each month you file ahead of full retirement
age, your benefits will be reduced. If you file at age 62 with a full
retirement age of 66, you'll lose 25% of your benefits. Do so when your full
retirement age is 67, and you're looking at a 30% reduction. Furthermore, any
reduction you face will remain in effect permanently unless you manage to
withdraw your benefits application within a year and also repay the SSA every
dollar it paid you, which is easier said than done.
4. Recognize the benefits of filing as late as possible
Just as
claiming Social Security early will cause a reduction in benefits, delaying
your filing past full retirement age will cause them to increase. For each year
you hold off on claiming Social Security beyond that point, you'll accrue delayed retirement credits that
boost your benefits by 8% a year, up until you turn 70. Keep in mind that while
the SSA won't force you to claim benefits at 70, there's no financial incentive
to wait past that point. In fact, if you hold off on filing for too long,
you'll risk losing out on money that could've been yours.
5. Realize your health should play into your filing decision
There
are many factors that will likely go into your decision of when to claim
benefits, like the extent to which you need the money and whether or not you're
still working. But one major driver of that decision should be your health. If it's poor,
then you're generally better off claiming benefits on the early side, because
while doing so will reduce your Social Security income on a monthly basis,
you're likely to come out ahead on a lifetime basis. On the flipside, if your
health is great, it generally pays to delay benefits as long as possible, as
doing so will produce the highest lifetime payout.
Imagine
you're entitled to $1,500 a month in Social Security at a full retirement age
of 67. Filing at 62 will reduce each monthly payment you collect to $1,050, but
you'll get 60 more payments so that you break even around age 78 1/2. But if
you don't live until 78 1/2, you'll come out ahead by filing early. And if you
delay benefits until age 70 in this scenario, you'll break even at age 82 1/2.
Therefore, if you live longer than that, you'll benefit by having held off on
filing.
The
more you know about Social Security, the better those benefits will serve you
in retirement. Keep these points in mind as you read up on the program and gear
up to make a decision that will impact your golden years, for better or for
worse.
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