Here's a startling fact from the Social Security Administration (SSA): "Among elderly Social Security beneficiaries, 37% of men and 42% of women receive 50% or more of their income from Social Security." It gets more startling, too: "... 12% of men and 15% of women rely on Social Security for 90% or more of their income."
Clearly, Social Security income will be vital to most of us. That's why we shouldn't make decisions or take actions regarding it until we have a solid understanding of at least the basics of Social Security. Here are four questions you should be able to answer, for example.
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1. What's my full retirement age?
For starters, understand that your Social Security benefits are based in part on your full retirement age, which is 66 or 67 (or somewhere in between) for most of us. If you retire at your full retirement age, you'll be able to collect the full benefits to which you're entitled, based on your earnings history. Much depends on that age, so be sure to learn what yours is.
2. How much can I expect to collect in benefits?
Next, learn how much you can expect to receive in benefits, so that you can plan, save, and invest better for your future income needs. You may not need to save or invest much if Social Security will provide much of what you need -- but that's not likely at all. For context, know that the average monthly retirement benefit was recently $1,661 -- about $20,000 per year. If you earned more than average in your working life, you'll receive more, but probably not as much as you'd expect. The maximum benefit, for those who earned the maximum amount over 35 years of working, was recently only $4,194 -- about $50,000 per year.
You can get a good estimate of your future Social Security benefit by visiting the SSA website and setting up a "my Social Security" account, for free. Once you do so, you'll be able to pop in any time to see the SSA's records of your earnings and your projected benefits. (Note that if you're still far from retiring, the estimates might change a lot as your career and earnings evolve.)
3. When is the best time to start collecting benefits?
If you're not pleasantly surprised by how much you can expect from Social Security, know that there are some things you can do to increase your Social Security benefit checks. A major strategy is to delay starting to collect them. You can start collecting as early as age 62 and as late as age 70. Starting before your full retirement age will shrink your checks (though you'll collect more of them), while delaying beyond it will make them about 8% bigger for each year you delay. This is a powerful strategy for many, but not all, people. If you can keep working beyond your full retirement age and you stand a good chance of living a longer-than-average life, the delaying strategy can serve you well. But if your family is generally short-lived, or you're not in great health, or you simply need the income soon, then it's not so terrible to start collecting early.
The decision regarding when to start collecting your benefits is a very important one, so read up on it and consider the pros and cons of your options.
4. Have I coordinated with my spouse?
Finally, if you're married, take some time to read up on Social Security strategies for couples. Here's one: If you have very different earnings histories, consider trying to delay starting to collect the benefits of the higher earner for as long as possible, up to age 70. That will make those benefits, which were already going to be higher than the lower earner's, as high as possible. This can serve you both well while you're both alive, and it could be a godsend to the lower earner if the higher earner dies first. When a spouse dies, the survivor gets to collect only one Social Security benefit -- the higher of the two. So it can be smart to try to make at least one benefit as high as possible.
The more you know about Social Security, the better decisions you'll make about it, and that can mean many more thousands of dollars coming your way throughout your retirement.
