Signing up for Social Security isn't a move to make lightly, since the age you file at will dictate what your monthly benefits look like for the rest of your life. Before you sign up for benefits, make sure you're fully aware of these important things.
1. What your full retirement age is
Your Social Security benefits are calculated based on your wages during your 35 most profitable years of earnings from a job. But you're only entitled to your monthly benefit in full once you reach full retirement age, or FRA.
FRA isn't the same for everyone; it depends on your year of birth, as per the following table:
|
Year of Birth |
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 or later |
67 |
Data source: Social Security Administration.
Now you should know that you're allowed to sign up for Social Security before reaching FRA. Specifically, you can file once you turn 62. But for each month you claim your monthly benefit before FRA, it will be reduced by a certain percentage. Claiming benefits a few months early may not hurt you too much in the long run, but if your FRA is 67 and you sign up for benefits at 62, you'll be looking at a 30% reduction in your monthly Social Security income. That's a hit you may not be able to afford to take.
Image source: Getty Images.
2. What your estimated monthly benefit looks like
The average Social Security recipient today collects about $1,500 a month. But that's not necessarily what you'll get to collect.
Remember, your monthly benefit is based on your earnings record, and also, your filing age, but a good way to determine what benefit you're in line for is to check your Social Security earnings statement. If you're 60 or older, you'll get a paper copy of your statement in the mail every year. If you're younger than that, you can create an account on the Social Security Administration's website and access it there.
Of course, the younger you are, the less accurate your estimated monthly benefit will be, since future earnings could cause that number to change. But if you're close to retirement, the number you see will be pretty representative of what you stand to collect.
Another thing you should know is that if you claim Social Security early, your benefits will be reduced by 6.67% a year for the first three years you file ahead of FRA, and then by 5% a year for each year thereafter. If you check your earnings statement and see that you're entitled to an estimated benefit of $1,400 a month at FRA, but you're thinking of claiming it a year early, just do the math, and you'll see that filing 12 months in advance will shrink that benefit to about $1,307.
3. What you stand to gain by waiting
Just as your benefits are reduced when you claim them before FRA, so too can you grow your benefits by delaying them past FRA. For each year you hold off, your benefits go up by 8%, up until age 70, at which points you can no longer accrue delayed retirement credits that raise your Social Security income.
Going back to our example, say you're entitled to $1,400 at FRA, only you choose to delay your benefits for two years. Suddenly, you're looking at getting $1,624 a month instead.
There are a lot of nuances at play when it comes to Social Security, so before you file for benefits, make sure you're armed with the right information. That way, you're more likely to make a smart filing decision that serves you well throughout retirement.
