Most Americans rely on Social Security benefits for much of their retirement income, if not most of it. It's likely to provide a big chunk of your retirement income, so be sure you're familiar with the program and how to make the most of it, lest you end up collecting less in benefits than you could.
Here are five critical things to know about Social Security, along with some helpful actions you can take.
Tip No. 1: Know your full retirement age
Let's start with the basics. Each of us has a "full retirement age," at which we're entitled to start receiving our full Social Security benefits. You might be assuming that that age is 65. Well, it used to be 65 for all, but the program has been tweaked over the years in order to strengthen it and because people are living longer now than they were when Social Security was created in the 1940s. Many people's full retirement age was increased, and you can find yours in the table below:
Tip No. 2: Know how much income to expect
Next, you'd do well to have a good idea of how much income you can expect to receive from Social Security in retirement, so that you can work on making up the difference through savings and investments.
The average Social Security retirement benefit was recently $1,415 per month, or about $17,000 per year. If your earnings have been above average, though, you'll get more money out of the Social Security program than most people. The recent maximum monthly Social Security benefit for those retiring at their full retirement age was recently $2,788. (That's about $33,500 for the whole year.)
You can find out what you can expect to receive in retirement by setting up a my Social Security account with the Social Security Administration (SSA). That's also where you can change your address, review the SSA's record of your past earnings to make sure they're correct, check the status of your application for benefits, request a replacement Social Security card (if you meet certain criteria), request a replacement Medicare card, start or change direct deposits for your benefit payments, and get a replacement SSA-1099 or SSA-1042S form for tax purposes -- among other things. Setting up an account is a smart thing to do. It can also prevent identity theft and headaches, if you set up your account before a scammer does it for you, pretending to be you.
Tip No. 3: Learn how to maximize your benefits
Once you know how much income you can expect to get from Social Security, remember that that amount is far from set in stone. There are a bunch of ways to increase your Social Security benefits. A key way to do so is to delay starting to collect them.
No matter when your full retirement age is, you can begin collecting your benefits as early as age 62 and as late as age 70. For every year beyond your full retirement age that you delay starting to receive benefits, you'll increase their value by about 8% -- until age 70. So delaying from age 67 to 70 can leave you with checks about 24% fatter. Not surprisingly, if you start collecting early, your benefit checks will be smaller. (It's still a good idea for many, if not most, people to start collecting at age 62.)
The table below shows the approximate percentage of your full Social Security benefits that you'll get if you start collecting at various ages. It gives you a rough idea of the effect of waiting to start collecting your benefits or doing it earlier.
So if you decide not to delay collecting your benefits (or even to start early), how might you still increase those benefits? One way is to be sure to work at least 35 years. The formula used to compute your benefits is based on your earnings in the 35 years in which you earned the most money (adjusted for inflation). If you only earned income in 31 years, the formula will be incorporating four zeros, which will shrink your benefits. Even if you have worked 35 years, if you're currently earning much more than you have in the past (on an inflation-adjusted basis), you might consider working for another year or two, as each high-earning year will kick a low-earning year out of the calculation, boosting your benefits.
If you can manage to earn more, you'll probably end up with fatter benefit checks. Even if you have 35 years of earnings already, if you're earning $75,000 now and some of your early years feature inflation-adjusted incomes of, say, $30,000, you can increase your ultimate benefits by working a little longer so that a few high-income years can be included in the calculations, replacing some low-income years.
It can also be worth examining the SSA's record of your income and taxes paid into the Social Security system, to make sure it's correct. If it's not, you might end up receiving smaller benefit checks than you've actually earned. Simply correcting an error might increase your benefits!
Tip No. 4: Coordinate a strategy with your spouse
If you're married, you have more Social Security strategies to consider than single people. For example, you and your spouse might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect the benefits of the higher-earning spouse. That way, you'll both enjoy some income earlier, and when the higher earner hits 70, they can start collecting extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks as their own.
It's not a bad idea to go over Social Security strategies and your overall retirement plan with a professional advisor, if you're not confident that you have a good plan and are on track to retire well. Advisors designated as fee-only won't be looking to earn commissions from selling you products, and you can find one at www.napfa.org.
Tip No. 5: Don't assume that Social Security is doomed -- or absolutely hunky-dory
Finally, don't fall for alarmist reports that Social Security is doomed and won't be around when you need it. It will be around -- though it might be weakened. For example, one worst-case scenario has retirees ending up with about 75% of the benefits they were expecting.
The more you know about Social Security, the better off you might be in retirement.
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