Are you thinking about starting your Social Security benefits? The decision to file for your first check can be difficult to undo and it can affect the income you get every month and over the rest of your life.
Before you move forward with claiming your retirement benefits, there are four numbers you must know to make sure you're making the right choice. Here's what they are.
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1. Your full retirement age
Knowing your full retirement age (FRA) is crucial because FRA -- along with the age you start your checks -- determines how much income Social Security will actually provide.
Every retiree has a primary insurance amount (PIA). Yours is based on your average wages. But the catch is, you don't get your PIA unless you start your first Social Security check exactly at your full retirement age. If you choose to file at a different time:
- You could face early filing penalties. For each of the first 36 months you get a check before FRA, these penalties reduce your PIA by five-ninths of 1%. This results in a 6.7% benefits reduction for every year you're early during the first three years before FRA. If you retire more than 36 months early, the applicable early filing penalties for additional months are five-twelfths of 1%. That's an additional 5% reduction in benefits per year.
- You could earn delayed retirement credits. For each month you wait to get your first check until after FRA, these raise your PIA by two-thirds of 1%. This adds up to an 8% annual benefits increase.
You need to know your FRA so you can decide what claiming age is appropriate for you -- and so you can understand how your choice affects your income. The table below shows what yours is, as it's based on your birth year.
|
Birth Year |
Full Retirement Age |
|---|---|
|
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.
2. Your years of work
The number of years that you've put into your job is also important to know before you decide it's time to claim benefits. That's because working for too few years could leave you with a smaller benefit.
See, Social Security benefits are based on average wages -- but over a specific period of time. Specifically, the wages that count when your average is determined are those in the 35 years when your earnings were higher.
If your work history doesn't span 35 years, the same formula is still used to calculate your benefits. But the issue there is that some years of $0 wages end up included in your average wage -- thus lowering it and reducing your benefit.
You should make sure you've got at least 35 years in the workforce before retiring if at all possible so you don't take this hit.
3. Your standard benefit
The primary insurance amount you get at full retirement age is also sometimes called your standard benefit. You can find out what yours is by signing into your mySocialSecurity account.
It's worth taking a look at your standard benefit before you decide it's the right time to claim Social Security. Once you do, you may find it's much lower than you expected if you were counting on Social Security to be a major or primary income source.
The bottom line is, your retirement benefits from Social Security are intended to replace about 40% of what you earned on the job. You aren't going to be able to live on them alone so you must be prepared for that reality and ensure you have income from other sources sufficient to cover any additional costs Social Security benefits won't pay for.
4. Your spouse's standard benefit
Finally, you should find out how much your spouse is going to be entitled to in Social Security benefits as well. That's because you and your partner may want to work together to decide who should claim benefits at which particular time to maximize your combined lifetime income.
If your spouse will get a very low benefit, or no benefit, based on their own work history, they may want to claim spousal benefits. These can't be started until after you've claimed your own benefits, so this could shape when you start your checks. If you were the higher earner, you may also want to delay the start of your own Social Security checks, as doing so can increase the amount of survivor benefits your lower-earning spouse would get if you passed away first.
Obviously, there's a lot to think about when it comes to claiming Social Security benefits. So be sure you know all four of these answers so you can make the choice that's right for both you and your family.
