As we approach our retirements, it's critical to get savvy about Social Security, because it's likely to be a vital source of income for most of us. Indeed, without this federal program, more than 22 million Americans would be living in poverty, per the Center on Budget and Policy Priorities.
The more knowledgeable you become about this program, the better you'll be able to make decisions that help you get the most out of it -- because to some degree, how much you will collect is under your control. Here are five good tips to get you started.
Image source: Getty Images.
No. 1: Know your full retirement age
Let's start with your "full retirement age," because a lot depends on it. It's the age at which you qualify to start collecting what the government defines as the full benefits to which you're entitled, based on your earnings record. It used to be 65 for everyone, but with people living longer than they did when Social Security was created, Congress has made some adjustments -- and it may make additional revisions in the future. Here's where matters stand for future retirees today:
|
Birth Year |
Full Retirement Age |
|---|---|
|
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 |
Source: Social Security Administration.
No. 2: Find out how much to expect in your benefit check -- and how to enhance it
The average monthly Social Security retirement benefit check as of last month was $1,478, which adds up to about $17,700 a year. That's not much -- and it's just the average. Many retirees will be getting less, while those who earned above-average incomes during their working lives will get more -- but not too much more. The maximum benefit for those retiring at their full retirement age was recently $2,788, or about $33,500 per year. (Benefits do get adjusted for inflation regularly.)
But most of us are not average, so what will be more important to you is an estimate of how much you are on track to receive. To find out, visit the Social Security Administration website and set up a my Social Security account. Once you do, you can check in any time to see a record of your earnings and an estimate of your future benefits. (If you notice any errors in those records, be sure to contact the SSA and ask to have them corrected.)
Whatever figure the SSA lists for you, it will be based on the idea that you're going to file for your benefits at your FRA. You can make your checks bigger by delaying when you start to collect them, or smaller if you opt to start collecting them earlier.
Starting to collect early is not crazy, either. Americans can file for Social Security as young as 62, and many people simply need the income as soon as they can get it. And, while starting to collect early means smaller checks, you'll also get many more of them.
You can also postpone filing to as late as 70, and for every year past your full retirement age that you delay, your benefits will increase by about 8%. Starting at 62 can shrink your full benefits by 25% to 30%.
|
If You Start Collecting Social Security at... |
Percentage of Your Full Benefit You'll Receive If Your FRA Is 66 |
Percentage of Your Full Benefit You'll Receive If Your FRA Is 67 |
|---|---|---|
|
62 |
75% |
70% |
|
63 |
80% |
75% |
|
64 |
86.7% |
80% |
|
65 |
93.3% |
86.7% |
|
66 |
100% |
93.3% |
|
67 |
108% |
100% |
|
68 |
116% |
108% |
|
69 |
124% |
116% |
|
70 |
132% |
124% |
Source: Social Security Administration.
No. 3: Learn other ways to maximize your benefits
Your monthly Social Security benefit is based on a formula that averages your earnings (on an inflation-adjusted basis) from the 35 years during which you earned the most. So if you only worked for, say, 30 years, that average will incorporate five zeroes, which will shrink your benefits. It's best to work for at least a full 35 years if you can.
Meanwhile, if you have worked 35 years and are now earning much more than you did earlier in your career (again, on an inflation-adjusted basis), you might want to work a few more. Each additional high-income year will displace a lower-income year from the calculation, boosting your average income and plumping up your benefits.
Image source: Getty Images.
No. 4: Coordinate a strategy with your spouse
Yet another way to maximize the income you and your spouse receive from Social Security is to have a coordinated plan about when you'll each start collecting. For example, imagine that you have earned much more over your working life than your spouse. You might decide that your spouse will start collecting benefits early or on time, while you delay starting to collect yours -- ideally, until you're 70. That way, the two of you will collect some income for a period, while the second income stream -- the one with higher potential -- grows as large as it can get. When you start collecting it, too, you'll enjoy a greater total. And better still, when one of you passes away, the survivor, who will only be able to collect one of the two income streams, will be able to opt for the enhanced larger one.
Every couple's situation is different, so read up on Social Security strategies and see what's best for you, given your ages, financial condition, earnings histories, and so on. Consider consulting a financial advisor -- they may be able to more than make up for their fees with the expert advice they provide, and they can review your overall retirement preparedness and help you form a sound plan. Favor fee-only advisors, who won't be collecting any commissions for selling you products.
No. 5: Don't worry that Social Security will go away -- but don't assume it won't change either
Finally, it's a good idea to keep up with the latest news about Social Security -- because some of our representatives in Washington are looking to strengthen or enhance the program, while others would like to shrink or privatize it.
Don't believe everything you hear or read, either. The program will not have to cancel all benefits. While its trust fund is on track to run out of money in 2035 if Congress takes no action, there are a number of ways it can be shored up, such as increasing the Social Security payroll tax or removing the earnings cap that limits how much of our incomes are subject to the Social Security tax. And even if nothing is done in Washington to change matters, and that trust fund does run dry, the money paid into Social Security each year in new wage taxes would continue to support retirees' benefits, though it's estimated that they would have to be cut by around 21%.
The more you know about Social Security, the more you'll likely be able to collect from it, and that can make a big difference to your security in retirement.
