If you're thinking of retiring, chances are good you're eager to start collecting Social Security. Unfortunately, if you're like most people, you probably don't understand how these important benefits work. In fact, more than 9 in 10 adults don't have a clue how to maximize them. 

Since Social Security will probably account for a pretty big portion of your monthly income, it's important to ask the right questions -- and get the correct answers -- before you claim benefits. To start learning all you can about Social Security, read on. 

Social security card and money

Image source: Getty Images.

1. When can I claim Social Security benefits?

The earliest you can start receiving Social Security benefits is age 62. This is also the most popular age to claim benefits, according to the Center for Retirement Research

Many people choose to claim Social Security as soon as they're able because they cannot find work or physical issues prevent them from working.

But while you can claim benefits from age 62 onward, you won't be able to get Medicare benefits until age 65 -- so you'll need a plan for affording medical care if you'll retire at 62. 

COBRA entitles you to keep group coverage through an employer for between 18 and 36 months after leaving work, with the specific time determined by the reason for your departure. But since employers generally stop subsidizing premiums, costs can be high. Purchasing coverage on an Obamacare exchange is an option, too, and could be affordable if you qualify for subsidies.

2. When should I claim Social Security benefits?

While you can claim Social Security benefits at 62, this doesn't mean you should. Benefits are reduced if you claim before full retirement age (FRA) and increased if you wait until after FRA -- and Stanford experts believe waiting is typically best.

If you claim before FRA, benefits are decreased by 5/9 of 1% for the first 36 months. If you retire more than 36 months before FRA, benefits are reduced an additional 5/12 of 1% for each earlier month. But if you wait until after FRA, benefits increase by 2/3 of 1% per delayed month until the age of 70. 

To find out what your benefit would be if you retire early, do this calculation:

(# months early up to the first 36 months x 5/9 x 1%) + (# months early before the first 36 months x 5/12 x 1%)

This will show you how much of a reduction in benefits you'll experience. Multiplying this number times your standard benefit amount shows what your benefits will actually be. If you're not sure what your FRA is, this chart will help: 

Birth Year

Full Retirement Age

1937 or earlier

65

1938

65 and 2 months

1939

65 and 4 months

1940

65 and 6 months

1941

65 and 8 months

1942

65 and 10 months

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 and later

67

Data source: Social Security Administration.

When you retire early, you get a smaller benefit for more years, which some people prefer. However, if you delay and live a long time, you'll eventually end up collecting more money in total from the Social Security Administration.

It's complicated to determine what's best, but there's simple math to calculate how long you'd need to live to break even

3. How much will my benefits be?

To determine your benefits are worth, the Social Security Administration calculates an average wage -- based on inflation-adjusted wages -- over the 35 working years when you earned the most. And if you worked less than 35 years, the Social Security Administration will average in zeros when calculating your benefits. This calculation gives you your average indexed monthly earnings (AIME).

Your monthly Social Security benefits are a portion of AIME calculated based on the following formula for 2018: 

  • 90% of the first $896
  • 32% of the amount between $896 and $5,399
  • 15% of the amount greater than $5,399 

The easiest way to see how much your benefits will be is to visit SocialSecurity.gov.  When you create an account, you'll see an estimate of benefits at age 62, FRA, and age 70. 

If you're going to retire early or late, use the details above about benefits reductions or increases to see what your benefit should be. Remember, if you get a reduced benefit because you retire before FRA, benefits throughout retirement are based on that amount. Benefits don't increase to the standard benefit when you reach FRA. 

4. Is there a way to increase my Social Security benefits?

Many people find Social Security benefits are too little to live on. Indeed, these benefits are not meant to provide the entirety of your income as a senior. Still, you may want to increase your benefits as much as possible.

Delaying your claim until age 70 is one option, but you can also explore other approaches such as claiming benefits on a spouse's work record. This is often possible even if you're widowed or divorced, provided your marriage was long enough. 

You can't claim benefits on a spouse's work record -- if you're still married and your spouse is alive -- unless your spouse has filed for benefits. Furthermore, while you can receive a maximum of 50% of your spouse's standard benefit if you retire at your FRA, you'll receive a reduced amount if you claim early. 

You can find out your spousal benefit by contacting Social Security at 800-772-1213 or visiting your local office for help. 

You can also increase your benefit by working longer if you don't have 35 years of work in. Or, if you're making a much higher salary at the end of your career than the start, working longer and replacing a lower-earning year with a higher-earning one makes your AIME higher. 

Increasing your income during your working life by negotiating your salary or taking on side gigs can also result in increased benefits as a senior. 

Social Security benefits are an important source of income

Social Security benefits are an important source of income and you pay throughout your entire career to get these benefits. You owe it to yourself to ensure you understand how benefits work so you can maximize the Social Security you receive.

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