According to a recent survey conducted by Nationwide, just 6% of survey respondents could accurately identify the four factors that would maximize their Social Security benefits.
This is a huge problem, as Social Security is a primary income source for many retirees -- and is most people's only guaranteed source of lifetime income. Not knowing how to maximize benefits can leave seniors inadvertently shrinking their checks, which could lead to financial struggles throughout retirement.
Here's what you need to know about maximizing Social Security
Americans are confused about Social Security
According to Nationwide, the majority of adults -- 60% -- were aware that work history played a role in earning the maximum Social Security benefit. Just over half -- 51% -- also knew that their age impacts whether they get the largest possible checks or not.
Far fewer people, however, knew that their marital status and benefit start date also played roles in whether they maxed out their retirement income. Just 38% knew the importance of their benefit start date, and 18% were aware that their marital status had an effect.
Americans also had some incorrect guesses about factors affecting their benefits, with 12% incorrectly assuming their life expectancy matters; 5% erroneously believing their financial history had an impact; and 24% believing that all of the above factors (including both the correct and incorrect ones) would affect their check amount.
The truth about earning the maximum Social Security benefit
The sad reality is that some of the biggest points of confusion about Social Security can have the greatest impact. For example, while fewer than four in 10 Americans realized the importance of the age when they start collecting benefits, your filing age is one of the most crucial factors determining the size of your monthly checks.
Retirees must claim at a specific age between 66 and 2 months and 67 in order to get their standard benefit (which is based on work history, as most people know). The age when they need to claim is called full retirement age, and it's determined by birth year.
Those who file for benefits ahead of their FRA are hit with early-filing penalties. These permanently reduce the size of Social Security checks, and they apply on a monthly basis. Starting benefits even a single month early can lower checks for life. The penalties have a big impact too, reducing benefits by 6.7% for each of the first three years you claim early and by 5% for each prior year.
This isn't the only way retirees could take a hit by not realizing the importance of their claiming age, either. That's because starting checks before 70 means forgoing delayed retirement credits that result in a larger monthly income.
This is just one example of how not knowing the facts about claiming Social Security checks could have consequences. If you don't know you're eligible for spousal or survivor benefits, you could miss out on even more money. And, unfortunately, you can't always count on Social Security to help you devise the best claiming strategy since representatives don't know your full life circumstances and won't typically spend the time analyzing every possible filing scenario.
Ultimately, it's up to you to take responsibility for maximizing retirement benefits you receive so you can be as financially comfortable as possible. This means taking the time to research the Social Security benefits formula and the factors affecting benefits. Only by becoming an informed consumer can you set yourself up to have the retirement you deserve.