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1 Social Security Myth That Could Cost You Thousands

By Katie Brockman - Feb 25, 2020 at 8:30AM

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Not understanding this aspect of Social Security could be a mistake that affects you for the rest of your life.

Approximately half of baby boomers expect Social Security benefits to be their primary source of income in retirement, according to a survey from American Advisors Group.

If you're expecting your benefits to play a significant role in your retirement, it's wise to ensure you're doing everything you can to maximize your monthly checks. And there's one pervasive myth that could be doing more harm than good when it comes to Social Security benefits.

Older man looking out a window

Image source: Getty Images.

How the age at which you begin claiming affects your monthly checks

The earliest you can begin claiming benefits is age 62, but you can also claim at any age after that. However, in order to receive the full benefit amount you're entitled to each month, you'll need to claim at your full retirement age (FRA) -- which is either age 66, 66 plus a few months, or 67, depending on the year you were born.

If you claim before your FRA, your benefits will be reduced -- by up to 30% if you have an FRA of 67 and claim at age 62. Some people (mistakenly) believe that if you claim early, these reductions are only temporary and you'll start receiving your full benefit amount once you reach your FRA. However, if you claim early under the assumption that your benefits will increase later, that could end up being a costly mistake.

The benefit amount you receive when you first begin claiming is the benefit amount you'll continue collecting for the rest of your life (save for annual cost-of-living adjustments, of course). That means if you claim early and receive smaller checks, you'll be stuck with those smaller checks permanently. You do have one opportunity to reverse your decision once you begin claiming, but you have to do it within 12 months of filing for benefits and will also need to pay back all the money you've already received.

This means it's extra important to ensure you're claiming at the right age, especially if you're going to be relying on your benefits to make ends meet in retirement. If you claim early without thinking of the long-term consequences, it could potentially cost you thousands of dollars.

What's the best age to claim Social Security?

There's no one-size-fits-all approach to claiming Social Security benefits because everyone's situation is different. Also, in theory, you should receive the same amount in benefits over a lifetime no matter when you begin claiming. The formulas used to determine the amount figure that, by claiming early, your checks will be smaller but you'll receive more of them. Likewise, the formula figures that, if you delay benefits past your FRA, you'll receive bigger checks, but fewer of them over a lifetime. That said, there are some situations where it's better to claim early or delay benefits.

The average American can expect to live to around age 84 to 86, according to the Social Security Administration. If you live an average lifespan, it may not matter what age you begin claiming benefits because you'll likely end up with roughly the same amount over a lifetime. However, if you expect to live a longer-than-average lifespan, it may be wise to delay benefits. By doing so, you'll collect bigger checks for the rest of your (very long) life, and you may receive tens of thousands of dollars more over a lifetime compared to if you'd claimed earlier. These fatter checks will be especially helpful if you don't have a robust retirement fund, because when you live a longer lifespan, you're more likely to run out of savings at some point.

On the other side of the coin, if you have health issues or other reason to believe you'll live a shorter-than-average lifespan, it may be smarter to claim early. You'll receive smaller checks by doing so, but it can give you more time to enjoy your money.

Of course, you can't predict your life expectancy with 100% accuracy, but give it your best estimate. Take an honest look at your health, and consider your family history. If all your relatives have lived into their 90s and you're in the best shape of your life, it's probably safe to assume you'll be spending a lot of time in retirement. But if you're struggling with health issues or certain illnesses run in your family, it could be wise to claim benefits early to give yourself as much time as possible to enjoy your senior years.

Social Security benefits are an integral part of retirement, so it's a good idea to have a solid grasp of how the program works. When you fully understand how the age at which you claim will affect your monthly checks, you can make the best decision possible for your financial future.

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