Did you know that 57% of Social Security recipients start receiving benefits before they reach Full Retirement Age, resulting in the lowest benefit? For most current retirees, Full Retirement Age will range between ages 66 and 67, depending on the year you were born.1
Unknowingly, many people reduce their lifetime benefit payments by thousands of dollars.
The do’s and don’ts for claiming benefits can be complicated. By educating yourself on your options, you’ll be better equipped to make the right decisions for you. Here are some key Social Security facts to know.
Who’s eligible for Social Security benefits?
In order to be eligible for Social Security benefits, you need to earn enough credits based on your work history. You earn credits when Social Security taxes are deducted from the income you earned working.
You need 10 years of work to qualify and they don’t need to be consecutive. If you stop working before you have enough credits to qualify, you don’t need to worry about losing the credits you’ve earned. If you begin working again, you can add any new credits to your total.
The monthly benefit you’ll receive is determined by your age when you start your benefits and your average earnings during your working years. Higher lifetime earnings generally mean higher benefits, although there is a cap.
You may be wondering how Social Security benefits are calculated. The formula uses the 35 years in your employment history in which you earned the most (adjusted for inflation and any changes in your wages during those years). If your work history is less than 35 years, the remaining years with no earnings will be factored in at zero dollars.
You can increase your benefit by replacing any zero-dollar years by working longer, even if it’s just part-time. Fortunately, no lower-earning year will replace a higher-earning year because the benefit is based on the highest-earning 35 years. If you do happen to make more money, your benefit will be increased, even if you are still working while taking your benefit.
Your benefits may also be increased annually to account for increases in cost-of-living expenses. Any increases will be based upon the Consumer Price Index for that year, a measure of the change in prices typical consumers paid for retail goods and services.
- Taking benefits early could mean locking in a lower benefit amount. You can collect Social Security as early as age 62, but your benefit could be permanently reduced by as much as 25% of the eligible benefit compared to if you’d waited until reaching Full Retirement Age.2
- Full Retirement Age2 is the age at which you’re eligible to receive your full Social Security benefits. Waiting until this key age or even longer to start benefits can mean a larger benefit amount. It may also open up a variety of claiming strategies for married couples.
- It can pay to delay. Delaying your Social Security claim can be a huge plus. Each year you wait between Full Retirement Age and age 70, your benefit amount will increase automatically. For example, if you were born between 1943 and 1954, your benefit amount would increase by 8% annually for each year you waited between ages 66 and 70.
Marriage has advantages
While anyone may be able to increase benefits by delaying their start, married couples have several additional advantages when it comes to Social Security:
- Once a spouse starts receiving Social Security benefits (at Full Retirement Age), his or her partner can take spousal benefits, worth up to 50% of the benefit-receiving spouse’s total.
- Former spouses and surviving spouses may also be eligible to receive benefits based upon the worker’s benefit amount.
Benefits while working
If you are Full Retirement Age or older, you can continue to work and keep all your benefits, no matter how much you earn. However, if you are younger than Full Retirement Age and have started receiving Social Security benefits, there’s a limit to how much you can earn without reducing your benefits. How much your benefits are reduced3 depends on when you reach Full Retirement Age and how much you earn.
Social Security is incredibly complex. Choosing the best time to start benefits requires a thorough understanding of your individual situation and your options.
Although you may benefit from higher annual payments by delaying your start date, for some individuals, starting benefits earlier might be preferable. For example, if one spouse had significantly higher earnings during their working years, when they retire, they may need to start receiving payments sooner to offset any lost income.
An experienced financial professional can work with you to help determine the best time for you to file for Social Security, based upon your unique situation.
For additional information regarding Social Security, or to request an updated Social Security Statement, visit www.ssa.gov.
1 What’s the most popular age to take Social Security?, USA Today, June 19, 2018
2 Full Retirement Age is the age at which you’re eligible to receive your full Social Security benefits. For people born between 1943 and 1954, Full Retirement Age is age 66. For individuals born between 1955 and 1959, Full Retirement Age increases by two months for each additional birth year (e.g. an individual born in 1955 would reach Full Retirement Age two months after their 66th birthday). For those born in 1960 or later, Full Retirement Age is 67.
3 If you are younger than Full Retirement Age for the entire year or reach retirement age during the year, your benefits will be reduced over a certain threshold amount. The thresholds change annually, so it’s worth visiting Social Security’s website (www.ssa.gov) or speaking to a representative to determine the exact reductions and thresholds each year.
This material provides general information that is designed to be educational in nature and is not intended as specific tax or legal advice to any particular individual nor the law of any particular state. Please seek the advice of a qualified tax or legal professional for your specific situation.
The information above regarding Social Security was derived primarily from government sources and is believed to be accurate, but does not constitute legal or tax advice. Clients are encouraged to solicit advice from a qualified professional. The information presented does not constitute an advertisement or solicitation for the purchase or sale of any Social Security supplement policy. For more information, visit www.ssa.gov.
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