Social security can be a confusing topic, but considering 88% of workers expect to depend on their benefits for at least some retirement, according to a Gallup study, it’s important to understand as much as possible to maximize your monthly checks. .
In particular, there is a misunderstanding that the majority of almost retirees share. And if you fall for it, it could potentially cost you hundreds of dollars a month.
The costly mistake you may not be aware you are making
One of the most important factors to understand when it comes to social security is your full retirement age (OFF). If you were born in 1960 or later, your FRA is 67. For those born before 1960, your FRA is either 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 benefit amount you are entitled to charge. You can claim earlier than 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, at which point you will start receiving your full benefit amount. In fact, nearly 70% of baby boomers share this belief, according to a study by Nationwide. The truth is, though, that when you claim your FRA, you receive lower monthly payments for the rest of your life. If you expect your benefit amount to increase when you reach your OFF, you may be in for an expensive surprise.
How this misunderstanding can affect your retirement
If you claim early on the assumption that your monthly payments increase at your FRA, you may not be able to collect nearly as much each month as you expect.
The average retiree collects $ 1,514 per year. Month in benefits according to Social Security Administration. Say you have a 67 year old FRA and you will receive $ 1,514 per year. Month by claiming at that age. By claiming early at age 62, your benefits are reduced by 30%, giving you $ 1,060 per year. Month.
In other words, you might expect a boost of $ 450 per share. Month in benefits when you turn 67, but in reality you are stuck with the smaller checks for life. It can have a big impact on your retirement, especially if you want to rely on social security for a significant portion of your income.
Ways to increase your benefit amount
If social security benefits will be a significant source of income for you in retirement, it is a good idea to ensure that you do everything you can to raise as much as possible each month.
One way to increase the size of your monthly checks is to defer the claim for benefits. By waiting until after your FRA to file a social security claim, you will receive your full benefit amount plus a bonus of up to 32% each month. Because your benefit amount is generally locked into life when you start claiming, when you defer benefits, you receive larger checks each month for the rest of your pension.
Other options to increase your benefits include working longer or increasing your income. The Social Security Administration calculates your basic benefit amount (or the amount you receive by claiming from your FRA) by taking an average of your income over the 35 most lucrative years of your career and then adjusting it to inflation. By working for more than 35 years or increasing your income, you can increase your average earnings as well as your benefit amount.
You do not have to know all the detailed details of how your benefits are calculated, but by understanding the basics you can take steps to increase the size of your monthly checks. Social benefits are a lifeline for millions of retirees, so the more you receive each month, the better chance you have of enjoying a comfortable retirement.