For many retirees, social security benefits are the only thing that keeps them afloat.
Although your benefits are intended to replace only about 40% of your pre-retirement income, half of baby papers say they expect their benefits to be their primary source of income, according to a study by American Advisors Group, a leading reverse mortgage company . In addition, approximately 1 in 5 couples depend on their monthly checks for at least 90% of their income, the Social Security Administration (SSA) found.
Although it is not ideal to rely on your benefits more than you should, if you are approaching retirement and your savings are scarce, you may have no choice. If so, it is crucial that you maximize your monthly checks. And there are at least three ways you can hurt your Social Security benefits without even realizing it.
1. Not fully 35 years old
Before you can maximize your benefits, it is important to understand how they are calculated. SSA will first take the average of your 35 highest-earning years of work (called Average Indexed Monthly Earnings or AIME), and then apply a formula to it to account for any changes in overall pay levels. Your monthly compensation is then determined based on the result of this calculation.
The part of this calculation that you can control is the number of years you work. If you have not worked for 35 years, you will be zeroed into your calculation – which reduces your AIME. With a lower median income, you will see a lower primary benefit.
Even if you have worked for at least 35 years, you may want to continue a few years longer if you can. Since your average is based on the highest-income years and you probably earn a much higher salary near retirement than when you started your career, you can replace some of your lower-income years with more current ones and higher incomes, the result is a higher average income and a greater amount of benefits.
You can also see how much you can expect to receive in future Social Security benefits by creating a mySocialSecurity account to check your statements online. These estimates are based on your real earnings, giving you an accurate idea of how likely you are to receive.
2. If you do not claim at the right time
The basic entitlement to which you are entitled, you assume that you will claim your full retirement age (FRA), which is 67 years old, born in 1960 or later, or 66 or 66 years and several months for those born before 1960. If you make claims before or after that age, your benefits will be affected.
You can start applying for Social Security from the age of 62, but you will receive smaller checks. In fact, if your FRA is 67 years old, your benefits will be reduced by 30% if you claim 62. But if you wait after your FRA claims (up to the age of 70) you will receive a bonus over the full you checks. Those whose FRA is 67 can expect to receive an additional 24% each month, waiting up to 70 to submit a claim. Although you can wait up to 70 years to apply, benefits will not continue to increase – so there is no financial incentive to do so.
Usually these changes are permanent once you start making a claim. If you change your mind after you start claiming benefits, you have one opportunity to reverse your decision. You will need to do so within 12 months after you start claiming, and you will also need to pay back any benefits you have already received.
It may seem obvious at first glance: Wait to claim benefits for as long as you can receive these larger checks. But this is not always the case. For example, if you have health problems and do not expect to live that long, you may miss out on thousands of dollars in benefits by waiting longer to claim. On the other hand, if you expect to live for a long time and do not think that your personal savings will last for so many years, waiting as long as you can collect these thicker checks can lead to more revenue each month for the rest of your life.
3. Do Not Benefit From Spouse Benefits
If you are married, you may be able to collect benefits based on your spouse's employment record. For those who are currently married, you must be at least 62 to file a claim based on your spouse's data, and you also cannot begin receiving benefits until the spouse requests. When you start making claims, you can receive up to 50% of the full amount of your spouse's compensation.
Even if you are divorced, you may still be able to file a claim based on your ex-spouse's data if you have been married for at least 10 years and are not currently married (although if your spouse remarries) , you may still have the right to request his / her recording). You must be at least 62 years old, but in this case you do not have to wait until your ex-spouse claims before you can start receiving benefits until you have been divorced for at least two years. Furthermore, whether you are married or divorced, if you want benefits based on your spouse's record, your spouse's benefits will not be affected.
You can also claim spousal benefits even if you are entitled to benefits of your own. SSA will pay your benefits first, then if you can get more based on your spouse's record, you will receive an additional amount to make up the difference.
Finally, keep in mind that all normal claims rules still apply here. Although you can apply at the age of 62, you will not receive the full amount you are entitled to unless you wait while your FRA wants to claim it.
Social security benefits can be complex and confusing, but it's important to understand how they work if you want to get the most out of them. Especially if you don't expect to have enough savings to last the rest of your life, maximizing your benefits can help you enjoy a more sustainable financial retirement.