For millions of older Americans, Social Security benefits are an indispensable aspect of retirement. In fact, 64% of retirees say their benefits are a major source of income, according to a report by the Society of Actuaries.
© Provided by The Motley Fool
3 Things Boomers Need to Know About Social Security Before Retiring
Because social security benefits have the potential to make or break your retirement, it is essential to make sure you make the most of them. Social security can be a complex topic, but the more you understand about how the program works, the better the decisions you can make to maximize your monthly checks. And as you get closer to retirement age, there are three things you need to know.
© Getty Images
Social security cards stacked on top of each other
1. How much of your income will be replaced by Social Security benefits
If you are planning for your seniors, it is important to think about how much of your retirement income will come from your savings against other sources such as a pension or Social Security benefits. However, 57% of baby boomers say they do not know how much of their income will be replaced by Social Security in retirement, according to a recent Nationwide survey.
Load error
If you are not sure how much you will receive in benefits, it is difficult to determine how much you should save in your retirement fund. Fortunately, it’s easier than you think to estimate your future benefits.
To get an idea of how much you can expect to receive from Social Security, you can check your statements online by creating a mySocialSecurity account. Your statements use your real income to calculate your future benefit amount, giving you an idea of how much you will be able to depend on your retirement benefits.
2. How the age you apply for will affect your benefit amount
Your earning history determines how much you are eligible to receive benefits, but that assumes you will claim on your full retirement year (FRA) – that is, between 66 and 67, depending on the year you were born.
If you advance before or after that age, you will receive less or more in benefits each month. For example, if you have a 67-year-old FRA and you apply as early as possible at age 62, your benefits will be reduced by 30%. On the other hand, if you wait until age 70 to start applying, you will receive your full benefit amount plus an additional 24% each month.
One common misconception is that if you claim early, these benefit reductions are only temporary. Indeed, according to the Nationwide Survey, almost 70% of boomers share the (wrong) belief that benefits will only diminish until they reach their FRA, at which point they will start collecting their full benefit amount. In fact, if you claim earlier than your FRA, you will get smaller checks for the rest of your life. This means that it is even more important to choose wisely when deciding when to claim benefits, as it will have a lifelong effect on your monthly retirement income.
3. What factors constitute the maximum benefit amount you can receive
The maximum amount anyone can receive in Social Security benefits is $ 3,790 per month, according to the Social Administration. There are several factors that make up how much you are eligible to collect, and only 7% of boomers can name those factors, the Nationwide survey found.
One factor, as mentioned earlier, is the age at which you apply for benefits. To receive as much as possible each month, you need to wait until age 70 to start prescribing.
Other factors that affect your benefit amount include your history of income and how long you have worked. You must work at least 10 years and pay taxes to be eligible for benefits, but your benefit amount is based on the 35 highest earned years of your career. The Social Security Administration takes an average of your income in those years, adjusts it for inflation, and the result is your benefit amount. If you work for less than 35 years, you will include zeros in your average income, thus reducing your benefit amount.
Your income in those 35 years is also important. If you want to collect the maximum benefit amount, you must have earned the maximum taxable income from Social Security – which by 2020 is $ 137,700 per year. Not many people will be eligible to collect the maximum benefit amount, and that is good. By understanding the factors that influence your benefits, you can ensure that you do everything possible to collect as much as possible.
Make the most of your benefits
Many retirees depend on Social Security to make ends meet in retirement, so it is wise to take steps to maximize your monthly checks. If you know how much you will receive, as well as all the factors that affect your benefit amount, you can create a smart social security strategy and enjoy a financially secure pension.
The Motley Fool has a disclosure policy.
SPONSORED:
The $ 16,728 Social Security Bonus Most retirees overlook in full
If you are like most Americans, you are a few years (or more) behind on your retirement savings. But a handful of lesser-known “Secrets to Social Security” could help guarantee a boost in your retirement income. For example: one easy trick could pay you as much as $ 16,728 more … every year! Once you learn how to maximize Social Security benefits, we think you can confidently trust the peace of mind that we are all after. Just click here to discover how to learn more about these strategies.
Gallery: The Greatest Myths for Credit Score (Cheapism)
Continue reading
