Social security can be a confusing topic, but given that 88% of workers expect to depend at least to some extent on their retirement income, a Gallup study says it’s important to know as much as possible to maximize your monthly income. your checks.
In particular, there is a misconception that the majority of almost retirees share. And if you fall, it could potentially cost you hundreds of dollars a month.
The expensive mistake you may not realize you are making
One of the most important factors to understand when it comes to social security is your full retirement age (FRA). If you were born in 1960 or later, your FRA is 67. For those born before 1960, your FRA is 66 or 66 and a certain number of months, depending on the exact year you were born.
By claiming your FRA, you will receive the full amount of compensation you are entitled to collect. You can claim earlier than your FRA, but you will receive smaller checks each month.
A common misconception is that if you file an claim earlier, your benefits will only be reduced until you reach your FRA, after which you will begin to receive your full amount of compensation. In fact, nearly 70 percent of baby boomers share this belief, according to a Nationwide study. However, the truth is that when you file a claim with the FRA, you will receive lower monthly payments for the rest of your life. If you expect the amount of your compensation to increase once you reach your FRA, a costly surprise may await you.
How this misconception can affect your retirement
If you make claims earlier on the assumption that your monthly payments will increase in your FRA, you may not collect nearly as much each month as you expect.
The average retiree collects $ 1,514 a month in benefits, according to the Social Security Administration. Let’s say you have an FRA at age 67 and you would receive $ 1,514 a month by applying at that age. By claiming early at age 62, your benefits will be reduced by 30%, leaving you $ 1,060 per month.
In other words, you can expect a $ 450-a-month benefit increase after you turn 67, but you’ll actually be left with those smaller checks for life. This can have a big impact on your retirement, especially if you rely on social security for a significant portion of your income.
Ways to increase the amount of your compensation
If Social Security benefits will be an important source of income for you when you retire, it’s a good idea to make sure you’re doing your best to collect as much as you can each month.
One way to increase your monthly checks is to delay your claim. By waiting for the FRA to apply for social security, you will receive the full amount of the benefit plus a bonus of up to 32% each month. Because the amount of your benefit is usually locked for life, once you start filing claims when you defer benefits, you will receive larger checks each month until the end of your retirement.
Other options to increase benefits include working longer or increasing your income. The Social Security Administration calculates your basic benefit amount (or the amount you will receive when you request it in your FRA), taking the average of your earnings over the 35 years with the highest earnings in your career, and then adjusts it for inflation. By working for more than 35 years or increasing your income, you can increase your average income as well as the amount of your compensation.
You don’t need to know all the details of how your benefits are calculated, but once you understand the basics, you can take steps to increase the amount of your monthly checks. Social security benefits are a lifeline for millions of retirees, so the more you get each month, the better chance you have of enjoying a comfortable pension.