Seniors get to decide when to start receiving Social Security checks.
Unfortunately, actually making the choice about when to begin benefits can be more complicated than most people realize. As a result, sometimes older Americans make the wrong decisions because they don't have all the information they need.
You don't want your financial security in your later years to be affected by a bad decision regarding Social Security benefits. You can avoid this fate by making sure you don't claim them until you know three key facts.
1. How your age will affect your income
It may come as a surprise, but the age you begin getting benefits will affect both monthly and lifetime income. You need to understand how and why so you can make informed choices before starting your Social Security.
Under the rules for the benefits formula, retirees are entitled to a "primary insurance amount" (PIA) calculated based on their earnings. But they receive that amount only if they claim benefits at a designated age called Full Retirement Age (FRA).
Those who don't claim at FRA will have their PIA adjusted upwards if they wait to claim benefits after it, with their benefit increasing for each month they delay up until 70. And those who claim before will see their benefits reduced for each month they claim early, up to the earliest age of eligibility at 62.
Before claiming benefits, make sure you know when your FRA is (it's based on your birth year) and how much your benefit will shrink or increase if you aren't claiming right at FRA. You can sign into your mySocialSecurity account to help you figure this out, since you can see your projected benefits at different ages.
If you're considering delaying beyond age 62, you'll also want to calculate how long it will take you to break even for forgoing benefits by determining how much income you'll miss out on and how many months you'll have to earn a higher payment to cover that amount.
By doing these steps, you can decide if an early, late, or on-time claim is the best move in terms of both maximizing lifetime benefits and giving you a monthly income you're happy with.
2. How many years you've worked and why it matters
You'll also need to know how many total years of work you've put in. That's because this is important in determining your benefits amount.
Your PIA is calculated based on average wages during the 35 years you earned the most. And 35 years is always the time period used to determine your average wage, regardless of how many years your career history actually spans.
If you have more than 35 years on the job, this can result in a higher average wage and thus a higher benefit. That's because some of your lower-earning years will be pushed out and won't drag down your average. But if you have fewer than 35 years, the inclusion of years of $0 wages in your benefits calculation will result in a smaller Social Security income.
A record of your average earnings can be found on your mySocialSecurity account, so you can check to see how long you've worked if you don't know already. If you're earning a lot more on an inflation-adjusted basis than you did earlier on, you may also decide to keep working for longer to replace some low-earning years with high ones.
3. How much income your benefits will replace
Finally, it's important to have a realistic idea of what your Social Security income will do for you.
These benefits are intended to replace about 40% of pre-retirement earnings. Once you see how little that is, you'll need to make sure you have enough extra income to support yourself. If you don't, you'll want to keep working and saving for longer before retiring and claiming benefits so you don't get stuck struggling financially throughout your later years.