Social Security benefits are crucial to your financial security, but it's easy to get confused about how they're calculated. Social Security uses a longer work history than many public pensions do, leading to different incentives for working longer.
In the following video from our Social Security Q&A series, Dan Caplinger, The Motley Fool's director of investment planning, answers a question from Fool reader Leigh, who asks whether her father is correct that Social Security calculates benefits based on the last five years you work. Dan replies that it sounds like Leigh's father is thinking about rules for public pensions, which are often based on salaries for the final few years of your career. Dan explains, though, that Social Security looks at your full 35-year work history, adjusting early-year salaries for inflation to make the amounts comparable. As a result, strategies for boosting your Social Security benefits aren't affected as much by a high-paying job late in your career, although that would make some impact.
Have general questions about Social Security? Email them to [email protected], and they might be the subject of a future video!
Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.