Social Security can be a confusing topic, but considering the 88% of workers expected to rely on their benefits even somewhat in retirement, according to a survey from Gallup, it is important to understand as much as possible Maximize your monthly checks.
There is a misconception specifically that most retirees share. And if you fall for it, it can cost you hundreds of dollars per month.
The costly mistake you may not have been aware of
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 the benefit you are entitled to collect. You can get ahead of your FRA, but you will receive smaller checks each month.
A common misconception is that if you claim early, your benefits will only be reduced until you reach your FRA, once you start receiving your full benefit amount. In fact, almost 70% of baby boomers share this belief, a survey from Nationwide found. However, the truth is that when you claim before your FRA, you will receive lower monthly payments for the rest of your life. If you expect your benefit value to increase when you reach your FRA, you can get an expensive surprise.
How does this misconception affect your retirement?
If you are claiming early under the assumption that your monthly payment will increase your FRA, you may not be able to collect almost every month as you expect.
The average retiree collects $ 1,514 per month in benefits, according to the Social Security Administration. Say you have a FRA of 67 years, and you will receive $ 1,514 per month by claiming that age. By claiming early at age 62, your benefits will be reduced by 30%, leaving you with $ 1,060 per month.
In other words, you can expect a $ 450 per month boosting benefits later that you are 67 years old, but honestly, you will be stuck with smaller checks for life. This can have a huge impact on your retirement, especially if you rely on Social Security for a large portion of your income.
Ways to boost the value of your benefit
If Social Security benefits will be a significant source of income for retirement, it is a good idea to make sure you are doing everything you can to collect as much as possible each month.
One way to increase the size of your monthly checks is to delay the claim of benefits. By waiting until your FRA finishes filing for Social Security, you will receive your full benefit amount plus a bonus of up to 32% per month. Because your benefit amount is usually locked in for life once you start claiming, when you delay benefits, you will receive larger checks each month during your remaining retirement.
Other options to boost your benefits include working longer or increasing your income. The Security Administration calculates your primary benefit amount (or the amount you receive by claiming your FRA) by taking your average income over the 35 years of your career income, then will fix it for inflation. By working for more than 35 years or boosting your income, you can increase your average income as well as your benefit amount.
You do not have to know all the nitty-gritty details about how your benefits are calculated, but by understanding the basics, you can take steps to increase the size of your monthly checks. Social Security benefits are a lifeline for millions of retirees, so the more you receive each month, the more likely you are to have a satisfying retirement.